Middle East tensions ease, gold prices see the largest drop in four years, Wall Street remains optimistic about future performance
As the ceasefire agreement between Israel and Hezbollah approaches, gold prices have recorded their largest decline in four years, with Comex near-month gold futures falling 3.4% to $2,616.80 per ounce. Silver futures also dropped 3.5%. Analysts point out that the decline in safe-haven demand and the hawkish repricing of U.S. rate cut expectations have led to a moderately bearish short-term outlook for gold, but it still has the potential to rise to $3,000 per ounce in the long term
Zhitong Finance learned that the near-month gold futures contract experienced its largest single-day drop since November 2020 on Monday, due to news that Israel and Hezbollah may reach a ceasefire agreement, further weakening the safe-haven demand for gold, as well as Trump's choice of Scott Bessent as the new U.S. Treasury Secretary.
Comex near-month gold futures fell 3.4% to $2,616.80 per ounce, marking the largest single-day drop in dollars since November 9, 2020, and the largest single-day percentage drop since June 17, 2021; this ended a five-day streak of gains, but gold prices are still up 27% year-to-date. Comex near-month silver futures fell 3.5% to $30.210 per ounce, the lowest settlement price since September 12.
Israeli and U.S. officials said that Israel's security cabinet will vote on a ceasefire agreement on Tuesday, and the cabinet is expected to approve the agreement. Reports indicate that the agreement on the negotiation table includes a 60-day implementation period, allowing the Israeli military to withdraw; an international committee and UN peacekeepers will oversee compliance.
Mizuho analyst Robert Yawger wrote, "The appointment of Scott Bessent also led to a drop in gold prices... Compared to some other nominees for Treasury Secretary, he has the potential to be a stabilizing rock, and Bessent may also temper some of Trump's wish list, such as tariffs."
StoneX analyst Fawad Razaqzada stated that the short-term outlook for gold has turned moderately bearish amid declining safe-haven demand and a hawkish repricing of U.S. rate cut expectations. Nevertheless, in the longer term, gold prices could still rise to $3,000 per ounce, Razaqzada wrote.
Goldman Sachs analyst Daan Struyven's team pointed out in a report titled "Stay Selective, Hedge the Tails" released on the 17th that gold is the top trade choice for dealing with inflation and geopolitical issues, expecting gold prices to rise to $3,000 per ounce by the end of 2025. The structural drivers pushing gold prices up come from central bank demand, while cyclical drivers stem from Federal Reserve rate cuts, with the main downside risks being rising interest rates and a stronger dollar.
Meanwhile, Morgan Stanley's fund also stated that the upward space for gold after this round of adjustments has reopened. If Trump's related policies are truly implemented next year, there is a possibility of a second inflation or stagflation in the U.S., both of which would support gold prices to continue rising. His series of policy slogans, including global tariffs, domestic tax cuts, and expelling immigrants, could lead to persistent inflation in the U.S., while concerns about the long-term weakening of the dollar's credibility remain unresolved Therefore, we remain optimistic about the upward potential of gold.
In addition, UBS Group expects that by the end of next year, gold prices will rise to $2,900 per ounce. UBS analysts, including Levi Spry and Lachlan Shaw, stated in a report that due to the strengthening of the dollar and concerns that more fiscal stimulus in the U.S. could lead to rising interest rates, there may be a period of consolidation before precious metals begin to climb again