- Gold declines by over $30 on Monday after the news that Donald Trump has chosen Scott Bessent as the new US Secretary of the Treasury.
- Bessent is a seasoned Wall Street professional and is viewed as a safe pick by markets, reducing haven flows to Gold.
- Technically, XAU/USD pulls back after peaking and risks forming a bearish candlestick pattern on a daily close.
Gold (XAU/USD) recovers some of its losses on Monday to trade in the $2,680s after markets breathe a sigh of relief at the appointment of a “safe pair of hands” to take over from Janet Yellen as the next US Treasury Secretary.
President-elect Donald Trump has chosen hedge fund manager Scott Bessent to be in charge of the US Treasury when he becomes President in January 2025. Gold is losing ground because of Bessent’s reputation as a cautious operator who is likely to curb some of President Trump’s more radical economic and trade policies. This has likely calmed markets and reduced safe-haven demand for the precious metal.
Further anesthetizing markets are rumors that Israel and Hezbollah are close to reaching a ceasefire deal. Despite exchanging heavy fire over the weekend, the two enemies have also made “signs of progress in US-led ceasefire talks,” according to Reuters. Any breakthrough in talks would reduce geopolitical risk and safe-haven flows into Gold.
Gold falls on Bessent appointment
Gold is trading lower on Monday after President-elect Donald Trump announced Wall Street tycoon and founder of Key Square Group – a global macro investment firm – Scott Bessent as the US’s new Treasury Secretary.
Although Bessent supports the thrust of Trump’s protectionist and tax-cutting policy agenda, markets expect him to probably soften the blow from Trump’s tariffs and counterbalance inflation by reducing government spending. Based on his prior comments, the two things Bessent is passionate about are cutting the US’s debt pile and thwarting competition from China.
“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,” Vijesti News quoted Bessent as telling Bloomberg in August.
Bessent has advocated a “three-threes” policy in which he will try to reduce the US Budget Deficit to 3% of annual Gross Domestic Product (GDP) from a current estimated 6% in 2024, achieve a 3% annual GDP growth rate, and raise US Crude Oil production by 3 million barrels-a-day, according to Bloomberg News.
Technical Analysis: XAU/USD pulls back down to 50-day SMA
Gold pulls back down to not far above the (red) 50-day Simple Moving Average (SMA) at around $2,671 on Monday after peaking at $2,721 in early trade. The steep drop could form a Bearish Engulfing candlestick if it closes at or below the level of the 50 SMA.
If the pattern is confirmed and followed by a bearish candle tomorrow (Tuesday), this would signal a short-term reversal and more downside ahead.
XAU/USD Daily Chart
That said, the (blue) Moving Average Convergence Divergence (MACD) indicator crossed above its red signal line recently, providing a bullish “buy” signal and suggesting more upside on the cards for the price.
The precious metal’s trend is also bullish, and given the maxim that “the trend is your friend,” the odds still favor a continuation higher.
A break above $2,721 would be a bullish sign and give the green light to a continuation higher. The next target would be at $2,790, matching the previous record high.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
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