Gold prices were sharply down on Monday, snapping a five-day winning streak as safe-haven flows declined after reports hinted at a potential ceasefire in the conflict between Israel and Lebanon-based militant group, Hezbollah.
Meanwhile, gold was also pressurized as President-elect Donald Trump elected Scott Bessent as Treasury Secretary in the US and cleared a major point of uncertainty for investors.
“Moreover, expectations that Trump’s proposed policies could reignite inflation and limit the scope for the Federal Reserve (Fed) to cut interest rates further turn out to be another factor undermining the non-yielding gold price,” Haresh Menghani, editor at Fxstreet, said in a report.
At the time of writing, the December gold contract on COMEX was at $2,692.20 per ounce, down 1.7% from the previous close.
Israel considering ceasefire deal
Over the weekend, Axios and CNN reported that Israel was close to agreeing on a ceasefire deal with Hezbollah.
The report claimed that the US was brokering the deal between the two.
The Times of Israel reported that Prime Minister Benjamin Netanyahu was working on how to present the ceasefire deal to the public, after agreeing in principle to the Lebanon deal.
The deal could see a 60-day ceasefire with Hezbollah and a de-escalation of military action on both sides, according to a Reuters report.
The long-standing conflict between Israel and Hezbollah had escalated sharply in October, boosting safe-haven demand for the yellow metal.
Gold prices had climbed 5% on tensions in the Middle East as investors flocked to safe-haven assets.
Therefore, reports of a potential ceasefire in the conflict had weighed on sentiments with declining safe-haven inflows.
Gold prices were supported last week as tensions between Russia and Ukraine intensified with Russian President Vladimir Putin lowering the bar for using nuclear weapons.
Fed policy in focus
As reports suggesting a ceasefire in the Middle East weighed on the precious metal on Monday, investors were also concerned about the upcoming US Fed policy meeting next month.
According to the CME FedWatch tool, traders have priced in a 56.2% probability of the Fed cutting rates by 25 basis points in December. A couple of weeks ago, the probability of the cut was as high as 85%.
A resilient US economy with a strong labor market has dissuaded expectations of an interest rate cut next month.
“The recent hawkish remarks from several Federal Reserve policymakers and potential inflation surprises could support an on-hold interest rate decision in December,” Menghani said.
Investors this week will closely scrutinize the minutes from the November Fed meeting, and the US Personal Consumption and Expenditure Price Index data.
Menghani added:
Bessent’s conservative views on fiscal policy trigger a corrective decline in the US Treasury bond yields and prompt some US Dollar profit-taking from a two-year top.
Gold prices: technical analysis
“Having reclaimed all major daily Simple Moving Averages (SMA) on Friday, Gold price has paused its recovery momentum near $2,720,” Dhwani Mehta, analyst at Fxstreet, said in a report.
According to Mehta, the tide in price movement indicated a bearish trend for gold prices in the near term.
Mehta said the immediate support for gold prices on COMEX was around $2,670 per ounce, where the 21-day SMA and 50-day SMA closed in.
A sustained break of this level could accelerate a further downfall and prices could break below the $2,600 per ounce mark again.
Mehta added:
The November 20 low of $2,619 will be tested ahead of that.
On the other hand, buyers need more momentum in the market to breach the $2,750 per ounce mark. This could resume gold’s march towards its record high of $2,800 per ounce, breached before the US presidential election outcome.
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