Gold sticks to heavy intraday losses amid risk-on mood, holds above $2,650 level

Gold price falls sharply from a three-week high in the wake of the risk-on environment.
Bets for slower Fed rate cuts also drive flows away from the non-yielding yellow metal.
Retreating US bond yields prompt USD profit-taking and could help limit further losses.

Gold price (XAU/USD) witnessed an intraday turnaround after touching a nearly three-week high, around the $2,721-2,722 area and snapped a five-day winning streak at the start of a new week. US President-elect Donald Trump nominated Scott Bessent as Treasury Secretary and cleared a major point of uncertainty for markets. Adding to this, reports that Israel was close to reaching a ceasefire with the military group Hezbollah in Lebanon boosted investors' confidence. This, in turn, drives flows away from traditional safe-haven assists and keeps the precious metal heavily offered heading into the European session.

Moreover, expectations that Trump's proposed policies could reignite inflation and limit the scope for the Federal Reserve (Fed) to cut interest rates turn out to be another factor undermining the non-yielding Gold price. Meanwhile, Bessent has been vocal about the need to control the deficit, and his nomination offers some respite to bond investors. This leads to a sharp fall in the US Treasury bond yields, which prompts some US Dollar (USD) profit-taking following the post-US election run-up to the highest level since November 2022 and might help limit any meaningful depreciating move for the XAU/USD.

Gold price is weighed down heavily by receding safe-haven demand

The risk-on mood fails to assist the Gold price to capitalize on last week's strong gains and leads to an intraday turnaround from a three-week high on Monday.
Scott Bessent's nomination as US Treasury Secretary and de-escalation in the long-running Middle East conflict boosts investors' confidence at the start of a new week.
Media reports suggest that Israel and the Lebanon-based Hezbollah militant group are on the cusp of a ceasefire deal, though an agreement is not fully formed yet.
Furthermore, the optimism over more business-friendly policies from the new Trump administration remains supportive of a positive tone around the equity markets.
S&P Global's Composite US PMI rose to 55.3 in November – the highest level since April 2022 – and suggested that growth probably accelerated in the fourth quarter.
The recent hawkish remarks from several Federal Reserve policymakers and potential inflation surprises could support an on-hold interest rate decision in December.
The CME Group's FedWatch Tool indicates that traders are currently pricing in just over a 55% probability that the Fed will cut interest rates by 25 basis points next month.
Investors this week will closely scrutinize the minutes from the November FOMC meeting, and the US Personal Consumption and Expenditure (PCE) Price Index data.
Bessent's conservative views on fiscal policy trigger a corrective decline in the US Treasury bond yields and prompt some US Dollar profit-taking from a two-year top.

Gold price finds some support near 100-period SMA on 4-hour chart

From a technical perspective, the sharp intraday downfall drags the Gold price below the 23.6% Fibonacci retracement level of the recent strong recovery from a two-month low touched on November 14. The subsequent decline, however, stalls near the 100-period Simple Moving Average (SMA), around the $2,660-2,658 region. Meanwhile, oscillators on the daily chart have recovered from the negative zone and are holding in positive territory on the 4-hour chart. This makes it prudent for bearish traders to wait for some follow-through selling below the 100-period SMA and the 38.2% Fibo. level, around the $2,650 area, before placing fresh bets. The XAU/USD might then accelerate the fall towards the $2,630-2,629 region, or the 50% retracement level, en route to the $2,610-2,608 zone, or the 61.8% Fibo. level.

On the flip side, the $2,677-2,678 region (23.6% Fibo. level) now seems to act as an immediate hurdle ahead of the $2,700 mark. This is followed by the Asian session high, around the $2,721-2,722 area, above which the Gold price could accelerate the move up towards the $2,748-2,750 supply zone. The momentum could extend further towards retesting the all-time peak, around the $2,790 region touched in late October.

Risk sentiment FAQs

What do the terms"risk-on" and "risk-off" mean when referring to sentiment in financial markets?

In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.

What are the key assets to track to understand risk sentiment dynamics?

Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.

Which currencies strengthen when sentiment is "risk-on"?

The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.

Which currencies strengthen when sentiment is "risk-off"?

The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.

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