Gold prices fell 2% on Monday, with the gold/USD pair moving near the upper end of short-term correction territory between $2663.51 and $2693.40. The decline follows a five-session rise to a three-week high. The decline was attributed to profit-taking and declining safe-haven demand following the nomination of Scott Biscent as US Treasury Secretary. His appointment eased market concerns about aggressive trade policies and economic instability.
The pullback above the 50-day moving average occurs at $2666.15, and the near-term market direction is likely to depend on whether prices hold at the support package between $2666.16 and $2663.51. A drop below this zone could accelerate the sell-off towards $2629.13.
What are the underlying factors behind the decline?
Profit taking was the dominant factor, as investors managed to gain from last week’s rally, which posted the strongest weekly performance in nearly two years. Gold has traditionally served as a safe haven during political or economic uncertainty, but Biscent’s nomination eased concerns about a potential trade war. As a financial governor, Biscent’s appointment signals stability, which could reduce inflationary risks from tariffs.
Market focus is also shifting to key economic data due this week, including the minutes of the November FOMC meeting, core personal consumption spending data, and a GDP review. Traders assess the likelihood of a rate cut again, with a 56% probability of a 25 basis point cut in December.
How does broader market activity affect Gold prices?
The dollar weakened on Monday after an extended rally, driven by lower Treasury yields. Yields on the 10-year bond fell to 4.343% from 4.412% on Friday. Biscent’s nomination reassured bond markets, sending yields down and slightly weakening the dollar.
Silver and Gold Opportunity Challenges Amid Market Volatility
Silver presents a compelling opportunity as flex-traded fund holdings indicate strong confidence from investors, despite recent price volatility. With gold’s bullish outlook and ETF inflows increasing during price declines, silver seems poised for further gains, based on its staggering 30% growth since the beginning of the year.
Bank of America notes a 1.1 million ounce decline in global ETF gold holdings since the last peak of 84.1 million ounces, a decline that accelerated with the end of the U.S. election.
Hedge fund managers cut their bullish bets on gold to a 15-week low in light of the recent performance of flexible stock markets, especially Bitcoin.
The discovery of huge gold prices deposits in China’s Hunan province may pose a potential threat to global gold markets, with the discovery estimated at about 300 tons but at a depth of about 2,000 meters. It could disrupt supply dynamics if China can produce more gold domestically, especially if development proves possible. Three hundred tons of gold is equivalent to about 9.6 million ounces which is just over 1/10 of the total gold held in ETFs
Stocks were boosted by optimism about pro-business policies, reducing gold’s safe-haven appeal. However, upcoming inflation data could reignite fears, supporting a potential bullion rebound.
While a pullback may provide a buying opportunity near $2663.51, failure to maintain this level would signal a further drop towards $2629.13.
On the positive side, beating $2693.40 will be the first sign of strength. A sustainable movement above $2721.42 indicates stronger buying momentum, with $2790.17 emerging as the next target.
At the moment, the outlook looks mixed, and tends to fall in the short term unless gold decisively breaks the $2693.40 level, which could turn sentiment to the upside.
Expectations of the rise of gold prices and silver in global markets
Gold from its 13-year cup and handle pattern earlier this year hit an all-time high and advanced to $2,800 an ounce.
Silver has emerged from 4 years of resistance and recently reached an 11-year high, touching $35 an ounce. However, the persistent bull US stock market and emerging bubble in cryptocurrencies have stolen its luster.
In nominal terms, gold and silver have made higher rises and are in a bull market. But in real terms, gold and silver have almost never moved off the ground.
Gold and silver have yet to make any progress against the traditional investment portfolio (60/40 portfolio) in the past six years. They have yet to achieve a higher rise since the bear market began at the end of 2011.
Towards the end of 2011, the share of ETFs in gold against all ETF assets was 8%. A few months ago, the quota was barely 1%. The last two global bull gold markets have peaked with gold supporting more than 100% of the monetary base. The legal mandate under the Federal Reserve Act of 1913 was 40% support.
Support has risen from an all-time low of 7% a few years ago to 12.4% today. Reaching the 2008 peak of nearly 30% would put the price of gold at nearly $6,500 an ounce.
Gold and silver have advanced a lot in recent years but remain cheap in real terms. The global bullish market for precious metals has just begun. When gold starts to outperform the 60/40 portfolio and the stock market seriously, gold and precious metals will cross the bottom. Until then, one can invest in high-quality startups which will lead them to the next higher stage.
