Gold weakens amid Treasury pick, Fed rates expectation

Bullion down more than 2% as investors weigh challenges.

NOV 25, 2024

By Bloomberg

by Sybilla Gross and Jack Ryan

Gold tumbled as traders digested Donald Trump’s pick of Scott Bessent as Treasury Secretary and looked toward the Federal Reserve’s next interest-rate decision.

Bullion slid as much as 2.1%, after capping the biggest weekly rally in 20 months on Friday as an escalation in the Russia-Ukraine conflict bolstered the metal’s haven appeal. Prices fell on Monday even as the dollar and US bond yields weakened, moves that typically benefit gold.

Markets broadly welcomed the choice of Bessent for Treasury Secretary 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 price drop on 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.

Investors are now focused on the outlook for monetary policy, after a report showed US business activity expanding at the fastest pace since April 2022. Swaps traders see a less-than-even chance the Fed will cuts rates next month. Higher borrowing costs tend to weigh on gold, as it doesn’t pay interest.

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.

Gold has still climbed roughly 30% this year, supported by central bank purchases and the Fed’s pivot to rate cuts. Haven buying has also been a feature on an escalation in the Russia-Ukraine war. 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 1.7% to $2,670.50 an ounce as of 10:30 a.m. in London, after jumping 6% last week. Silver, platinum and palladium also fell. The Bloomberg Dollar Spot Index declined 0.5%.