Gold plummets as safe-haven demand drops

Gold prices plummeted from $2,720 per ounce to $2,620 per ounce on Monday, on reduced safe-haven demand. If gold prices rise, they may encounter resistance at $2,725 per ounce, while if gold prices decline, support may be encountered near $2,560 per ounce. 

Gold prices skyrocketed to an all-time high of $2,700 per ounce earlier this month, but had been moving in overbought territory, and collapsed after the announcement of Donald Trump’s victory in the US Presidential elections. 

The announcement that President-elect Donald Trump has chosen hedge fund manager Scott Bessent as the new US Secretary of the Treasury put pressure on gold prices on Monday. Bessent is known for his cautious stance, and he is considered a safe choice to take over from Janet Yellen as the next US Treasury Secretary, which is lowering the demand for safe-haven assets.

Heightened geopolitical tensions raised the appeal of safe-haven assets last week, boosting gold prices. Tensions between Russia and Ukraine flared last week and safe-haven demand rose. Geopolitical tensions cooled over the weekend, however, leading to a drop in safe-haven demand.

The crisis in the Middle East has also been boosting demand for safe-haven assets, keeping gold prices high. The conflict in the Middle East, however, has been raging for over a year and markets are starting to ignore this risk, lowering the appeal of safe-haven assets. In addition, reports that Israel and Lebanon have agreed to the terms of a peace deal that will end the Israel-Hezbollah conflict lowered the appeal of safe-haven assets on Monday.

Gold prices have been typically directed by the dollar’s movement, as the competing gold typically loses appeal as an investment when the dollar rises. The dollar dipped on Monday, and the dollar index dropped from 107.5 to 106.8. US treasury yields declined, with the US 10-year bond yield falling from 4.41% to 4.28%. Gold prices continue to move independently from the dollar this week, however, as the dollar’s decline was outweighed by a drop in safe-haven demand.

The US Federal Reserve cut interest rates by 25 basis points last week to a target range of 4.50% to 4.75%. The Fed had already launched its easing cycle in September, with an aggressive 50-bp rate cut, signaling the end of its restrictive monetary policy. Gold prices are supported by expectations of further Fed rate cuts. Rate cut expectations have been fluctuating in the past couple of weeks, with odds of a December rate cut hovering near 55%. 

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Written by:
Myrsini Giannouli

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