(Bloomberg) — Gold tumbled on signs of deescalating geopolitical tension in the Middle East, reducing appetite for the haven asset.
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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.
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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.
