Gold Tumbles on Signs of Easing War Tensions in Middle East
Sun Nov 24 2024
Gold tumbled on signs of deescalating geopolitical tension in the Middle East, reducing appetite for the haven asset. Israel is potentially days away from a cease-fire agreement with Lebanon’s Hezbollah, the Israeli ambassador to the US said. Prices extended losses after Axios reported that Israel and Lebanon have accepted the terms of a ceasefire agreement. The parties haven’t yet announced an agreement, it said.
“There tends to be a very positive risk-gold relationship, so when risk drops gold does, too,” said Bart Melek, global head of commodity strategy at TD Securities.
Bullion tumbled as much as 3.7% to $2,615.58 an ounce, the biggest intraday decline since June 7. Traders were unwinding positions built last week amid rising geopolitical tensions, which helped the metal register the biggest weekly rally in 20 months.
While haven buying on escalating war jitters in the Russia-Ukraine war and in the Middle East has been a constant support for gold prices this year, investors are focusing more on where the Fed’s easing policy may go against a backdrop of resilient economic data.
Swap traders see a slightly more than even chance the US central bank will cut rates next month, while hedge funds slashed their bullish bets on gold before a flare-up in the Ukraine war last week. This less dovish path suggests there’ll likely be more downside in gold, according to TD Securities.
A slew of of data this week may yield clues on the Fed’s likely rate path. These include minutes of the central bank’s November meeting, consumer confidence and personal consumption expenditure data — the monetary authority’s preferred gauge of inflation.
Traders were also digesting President-elect Donald Trump’s pick of Scott Bessent for Treasury Secretary. The pick is seen as a measured choice that would inject more stability into the US economy and financial markets. The hedge fund manager’s nomination has eased concerns over the incoming president’s inflationary agenda, which could reduce gold’s allure as a hedge against price rises.
The Bessent news is a possible driver of gold’s drop Monday, along with profit taking following last week’s rally, according to UBS Group AG commodity analyst Giovanni Staunovo.
“Some market participants see him as less negative for a trade war, considering his comments on a phased approach for implementing tariffs,” Staunovo said.
Gold has climbed more than 25% this year, supported by central bank purchases and the Fed’s pivot to rate cuts. Most banks remain positive on the outlook, with Goldman Sachs Group Inc. and UBS seeing further gains in 2025.
“Prices continue to reflect the interplay between geopolitical risks and a less dovish outlook from the Federal Reserve,” said Jun Rong Yeap, a market strategist with IG Asia Pte. “Any upside inflation surprises could further sway bets towards a potential rate hold in December, with any prospects of a slower pace of rate cuts likely to offer some resistance for gold prices.”
Spot gold retreated 3.5% to $2,621.85 an ounce as of 1:47 p.m. in New York. Silver, platinum and palladium also fell. The Bloomberg Dollar Spot Index declined 0.5%.
Source: https://www.bnnbloomberg.ca/