Gold is headed for a rare weekly loss after coming under immense pressure. The yellow metal has struggled to find support above the $2700 an ounce level amid renewed profit-taking and strengthening of the dollar across the board. Confirmation of a ceasefire between Hezbollah and Israel is one factor that has triggered a renewed sell-off on the metal.
Gold Pullback
The ceasefire deal has eroded the safe haven appeal of the metal that had been powering high amid soaring tensions between Iran-backed Hezbollah and Israel. The precious metal also came under pressure after Donald Trump picked Scott Bessent as the next treasury secretary. Bessent is seen as someone who will support the equity markets, which is fuelling demand for risk assets at gold expense.
Gold was also on the receiving end as the US dollar strengthened early in the week after Trump announced 25% import tariffs on Canada and Mexico. The protectionist policies will also affect Chinese goods, with Trump announcing plans to impose an additional 10% tariff.
Central Buying Exhaustion
Likewise, buying exhaustion is also contributing to weakness in gold prices. According to TD Securities Daniel Ghali, the strong demand for physical gold experienced early in the year is slowly waning. Central Asian banks and traders no longer buy gold as they used to at the start of the year due to significant price gains. Gold is up by over 35% for the year, hitting record highs of $2790 an ounce in October.
A very different outlook for the Federal Reserve, which no longer carries the risk of an overly easy Fed policy, is also likely to constrain gold-buying activity. When compared to Treasuries, another safe-haven asset, higher interest rates tend to lessen the allure of non-interest-bearing gold.
A rate cut in December no longer appears certain, given the ambiguity surrounding the possible effects of President-elect Donald Trump’s policies on critical economic sectors. The likelihood that the Federal Reserve will lower its benchmark rate at its December 17–18 meeting is 56%, which is significantly less than the 75% probability that existed approximately a month ago.
Gold Bullish Outlook
Nevertheless, the gold long-term outlook remains bullish as geopolitical tensions remain in play despite the ceasefire in the Middle East. Even with the ceasefire in place, Israel has already struck a facility deep into Lebanon, reiterating it is a tab used by Hezbollah to store mid-range rockets.
Likewise, tensions in Eastern Europe are also escalating, with Russia unleashing its biggest attack on Ukraine’s energy infrastructure. The attack triggered deep power cuts across the country. With geopolitical tensions showing no signs of subsiding, gold looks set to continue edging higher despite this week’s pullback.
Following Trump’s victory, gold prices dropped to a two-month low before rising back to $2,700. Robert Eckford, CEO of Rua Gold, expects price volatility to persist over the next four months as the Trump administration takes office, and significant announcements about tariffs and his stance on the Russian-Ukraine war are becoming more intense. Gold prices tend to react very sharply initially before correcting over time as economic factors come back into focus. Eckford expects gold prices to range between 2500 and $3,000 in 2025, much like when the Middle East conflict first started.
