Gold Prices Drop Amid Risk-On Sentiment, Hold Above $2,650 Level

Gold price (XAU/USD) saw a sharp intraday decline on Monday after briefly touching a nearly three-week high around the $2,721-$2,722 level. This drop ended the metal’s five-day winning streak, driven by a shift in market sentiment toward risk-on assets.

The decline in gold prices coincided with two key developments: US President-elect Donald Trump’s nomination of Scott Bessent as Treasury Secretary and reports suggesting progress toward a ceasefire between Israel and Hezbollah in Lebanon. These factors bolstered investor confidence, leading to a flow away from safe-haven assets like gold as markets opened for the new week.

Key Drivers Behind Gold’s Decline:

Risk-On Sentiment Gains Momentum:
- Scott Bessent’s nomination eased market uncertainties and signaled a more disciplined fiscal approach, boosting equity markets.
- Reports of a potential ceasefire between Israel and Hezbollah further reduced geopolitical tensions, enhancing risk appetite.
US Economic and Policy Factors:
- Optimism surrounding the Trump administration’s pro-business policies reinforced positive sentiment in equities, adding pressure on gold.
- Strong US economic data, including the S&P Global Composite PMI reaching 55.3 in November (the highest since April 2022), hinted at accelerated growth in the fourth quarter.
- Hawkish signals from Federal Reserve policymakers and the possibility of inflation surprises supported expectations for a hold on rate cuts in December.
US Dollar and Treasury Yields:
- While the US Dollar experienced profit-taking after reaching a two-year high, expectations of sustained monetary tightening limited gold’s upside.
- A drop in US Treasury bond yields, prompted by Bessent’s fiscal conservatism, offered only marginal support to non-yielding assets like gold.

Market Outlook:

Despite Monday’s decline, gold prices remain above the $2,650 support level, with investors awaiting key economic data and central bank signals for further direction.
This week’s focus will include the Federal Reserve’s November FOMC meeting minutes and the US PCE Price Index, critical indicators for inflation and monetary policy.

In the near term, a continued risk-on environment and easing geopolitical tensions could keep gold under pressure, though surprises in US data or policy shifts may spark renewed volatility in XAU/USD.