25 Nov 2024

• Gold price falls sharply from a three-week high in the wake of the risk-on environment. 
• Bets for slower Fed rate cuts also drive flows away from the non-yielding yellow metal. 
• Retreating US bond yields prompt USD profit-taking and could help limit further losses.
• Gold prices (XAU/USD) have retreated after reaching a nearly three-week high in the $2,721-2,722 range during the Asian trading session on Monday, effectively ending a five-day winning streak. The nomination of Scott Bessent as Treasury Secretary by US President-elect Donald Trump has alleviated a significant source of uncertainty for the markets. Additionally, reports indicating that Israel is nearing a ceasefire with the military group Hezbollah in Lebanon have bolstered investor confidence. This positive sentiment is reflected in the market atmosphere, which has contributed to a decline in the safe-haven precious metal, bringing it closer to the mid-$2,600s.
  
  Furthermore, there are growing expectations that Trump's proposed policies may reignite inflation and restrict the Federal Reserve's ability to further reduce interest rates, which has also negatively impacted the non-yielding gold price. Bessent's advocacy for deficit control has provided some relief to bond investors, resulting in a notable decrease in US Treasury bond yields. This situation has led to profit-taking in the US Dollar (USD) following its bullish performance post-election, which has reached its highest level since November 2022, thereby helping to mitigate any additional decline in the XAU/USD.
• Gold prices are experiencing significant selling pressure due to a positive market sentiment. The prevailing risk-on atmosphere does not enable gold to build on the robust gains achieved last week, resulting in an intraday reversal from a three-week peak observed on Monday.
  
  The nomination of Scott Bessent as US Treasury Secretary, along with a reduction in tensions in the protracted Middle East conflict, enhances investor confidence as the week commences. Reports indicate that Israel and the Hezbollah militant group based in Lebanon are nearing a ceasefire agreement, although it has not yet been finalized.
  
  Additionally, optimism surrounding potentially more business-friendly policies from the new Trump administration continues to foster a favorable environment for equity markets. The S&P Global Composite US PMI increased to 55.3 in November, marking the highest level since April 2022, and indicating that growth likely accelerated in the fourth quarter.
  
  Recent hawkish comments from various Federal Reserve officials, coupled with possible inflation surprises, may support a decision to maintain interest rates in December. The CME Group's FedWatch Tool reveals that traders are currently estimating a little over a 55% chance that the Fed will implement a 25 basis point rate cut next month.
  
  This week, investors will pay close attention to the minutes from the November FOMC meeting and the US Personal Consumption and Expenditure (PCE) Price Index data. Bessent's cautious stance on fiscal policy has led to a corrective decline in US Treasury bond yields and prompted some profit-taking in the US Dollar from a two-year high.
• From a technical standpoint, the significant intraday decline has pushed the Gold price below the 23.6% Fibonacci retracement level, following a robust recovery from a two-month low reached on November 14. Nevertheless, this subsequent drop appears to be halted near the 100-period Simple Moving Average (SMA), situated in the $2,660-2,658 range. Concurrently, oscillators on the daily chart have rebounded from negative territory and are currently positioned in positive territory on the 4-hour chart. This situation suggests that bearish traders should consider waiting for additional selling momentum to occur below the 100-period SMA and the 38.2% Fibonacci level, approximately around the $2,650 mark, before initiating new positions. Should this transpire, the XAU/USD may experience an accelerated decline towards the $2,630-2,629 area, or the 50% retracement level, on its way to the $2,610-2,608 zone, corresponding to the 61.8% Fibonacci level.
  
  Conversely, the $2,677-2,678 range (23.6% Fibonacci level) now appears to serve as an immediate resistance point ahead of the $2,700 threshold. This is succeeded by the Asian session high, located around the $2,721-2,722 area, beyond which the Gold price could gain momentum towards the $2,748-2,750 supply zone. The upward momentum may further extend towards a retest of the all-time high, approximately around the $2,790 level reached in late October.