Gold prices saw a sharp decline on Monday, dropping by 3% after reaching a three-week high. Reports of progress toward a ceasefire between Israel and Hezbollah, along with the announcement of Scott Bessent as the next U.S. Treasury Secretary, reduced the metal’s safe-haven demand.
Spot gold fell to $2,634.78 per ounce, marking its largest daily decline since early November. Similarly, U.S. gold futures dropped 2.8% to $2,636.50. Despite the sell-off, the XAU/USD pair managed to stay above $2,650, supported by the 100-period Simple Moving Average (SMA) on the 4-hour chart.
Competing Factors Influencing Gold
Gold’s medium-term outlook remains uncertain, as several factors impact its movement. Persistent inflation and the possibility of renewed geopolitical tensions could increase its appeal. On the other hand, strong U.S. economic growth and cautious Federal Reserve policies might limit upward momentum.
“Gold’s ability to stay above technical support levels, like the 100-period SMA, is crucial. If it breaks below these levels, further weakness could follow. However, holding above $2,650 may allow for recovery if market conditions shift,” said Mohamed Hashad, chief market strategist at Noor Capital.
Market Dynamics
The market opened the week on a positive note after Scott Bessent’s nomination as Treasury Secretary, reducing uncertainty. Progress toward a ceasefire between Israel and Hezbollah also eased geopolitical concerns, encouraging investors to shift to riskier assets like equities, which further hurt gold demand.
Adding to the bearish sentiment, optimism about the U.S. economy boosted investor confidence. The S&P Global Composite PMI rose to 55.3 in November, its highest level since April 2022, signaling faster economic growth. This optimism, coupled with expectations of business-friendly policies from the new administration, sidelined gold further.
The Federal Reserve’s hawkish comments have also tempered expectations of aggressive rate cuts. Current data suggests a 55% chance of a modest 25-basis-point cut in December. Stabilizing bond yields added pressure on gold, as it offers no yield compared to other assets.
Recent Gold Rally and Future Outlook
Last week, gold prices surged nearly 6%, crossing $2,700 for the first time in 20 months due to heightened geopolitical tensions between Russia and Ukraine. However, this week has seen profit-taking and a stronger greenback weigh on prices.
“This week, key data such as the Fed’s meeting minutes, consumer confidence, and personal consumption expenditures will give clues about the central bank’s direction. Gold is currently trading at $2,671, with support at $2,665 and next support at $2,628. Resistance is seen at $2,683,” said Vijay Valecha, chief investment officer at Century Financial.
Factors Supporting Gold Prices
Despite the recent drop, certain factors may limit further downside. Lower U.S. bond yields and a softer dollar due to profit-taking could provide temporary support. Investors are also waiting for key data points, including the U.S. Personal Consumption Expenditure Price Index and Federal Open Market Committee (FOMC) meeting minutes.
“Upcoming economic data and geopolitical developments will shape gold’s path in the coming weeks. Investors should remain cautious and monitor these factors closely,” Hashad added.
Gold’s performance will continue to depend on the interplay of risk sentiment, economic data, and geopolitical events in the weeks ahead.
