Gold (XAU/USD) experienced a steep decline during Monday’s US session, shedding nearly 2.5% to trade in the $2,640s. This drop followed reports that Israel and Hezbollah had agreed to a ceasefire, according to a US official. Markets appeared to respond with relief to the news, dampening the demand for gold as a safe-haven asset.
Impact of Treasury Secretary Appointment
The decline in gold prices was further influenced by President-elect Donald Trump’s announcement of hedge fund manager Scott Bessent as the incoming US Treasury Secretary. Bessent, founder of Key Square Group, is regarded as a steady figure in financial circles.
Markets anticipate that Bessent will temper some of Trump’s more extreme economic and trade policies. This perception has calmed fears of market volatility, reducing the safe-haven appeal of gold.
Bessent has a reputation for advocating fiscal restraint and pragmatic policy measures. He has previously emphasized the importance of reducing the US debt burden and tackling competition from China. Speaking in August, Bessent reportedly told a news outlet, “This election cycle is the last chance for the United States to get out from under a mountain of debt without becoming some kind of European-style socialist democracy.”
Bessent’s “Three-Threes” Policy Approach
Bessent has outlined a “three-threes” strategy aimed at addressing the US fiscal situation. This includes reducing the US budget deficit to 3% of GDP (down from 6% in 2024), achieving an annual GDP growth rate of 3%, and increasing US crude oil production by 3 million barrels per day. Markets appear optimistic that his policies will provide balance and stability to the US economy.
Technical Analysis: Gold’s Pullback Raises Concerns
XAU/USD Tests Key Levels
Gold pulled back below the 50-day Simple Moving Average (SMA) at $2,671 on Monday after an intraday peak of $2,721. The drop suggests the formation of a Bearish Engulfing candlestick, which could indicate a short-term reversal if followed by further bearish momentum.
Despite the current pullback, the Moving Average Convergence Divergence (MACD) indicator remains above its signal line, signaling potential bullish momentum. Traders are watching closely for a break above $2,721, which would signal a continuation of gold’s bullish trend, with the next target at $2,790, corresponding to its previous record high.
Inflation and Gold Prices
Gold’s performance is often influenced by inflation expectations, as it is viewed as a hedge against rising prices. While inflationary pressures remain in focus, the easing of geopolitical risks and the stabilizing influence of the Treasury Secretary announcement have weighed on gold prices in the short term.
Understanding Inflation
What is Inflation?
Inflation represents the increase in the price level of a basket of goods and services over time, typically measured month-on-month (MoM) or year-on-year (YoY). Core inflation, which excludes volatile components like food and energy, is a key measure used by central banks to guide monetary policy, with targets often set around 2%.
Impact on Gold Prices
Inflation expectations directly influence gold prices, as higher inflation erodes the value of fiat currencies, boosting the appeal of gold as a store of value. Conversely, a stable economic outlook and reduced inflationary fears can weaken gold demand.
Gold’s sharp decline on Monday reflects the interplay between easing geopolitical risks and a stabilizing economic outlook, driven by the upcoming leadership of Scott Bessent at the US Treasury. While technical indicators suggest mixed signals, the broader economic and political landscape will likely continue to influence gold’s trajectory in the coming weeks.
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