Gold prices experienced a sharp decline in Asian trade on Monday as reports of ceasefire talks between Israel and Hezbollah hinted at a potential de-escalation in the Middle East, reducing safe haven demand.
Despite this, the yellow metal had made significant gains the previous week due to increased tensions between Russia and Ukraine, which boosted safe haven demand.
Gold futures fell 1.6% to $2,670.82 an ounce, while December futures dropped 1.5% to $2,697.10 an ounce by 23:33 ET (04:33 GMT).
The broader metal market was supported by a significant drop in the dollar, which retreated alongside Treasury yields following the nomination of Scott Bessent as Treasury Secretary by U.S. President Donald Trump. Bessent’s nomination, viewed as a moderate choice, removed a major uncertainty for the markets.
Israel and Hezbollah Close to Ceasefire Deal
Reports from Axios and CNN indicated that Israel was on the verge of reaching a ceasefire agreement with Lebanese militant group Hezbollah, with the U.S. facilitating the negotiation.
Prime Minister Benjamin Netanyahu of Israel reportedly agreed in principle to the Lebanon deal and was working on presenting it to the public. The potential agreement could lead to a 60-day ceasefire with Hezbollah and a reduction in military actions from both sides.
While the ceasefire talks suggested a possible de-escalation in the ongoing conflict in the Middle East, continued strikes by Israel and Hezbollah over the weekend undermined the reports, impacting safe haven demand for gold.
Gold had seen significant gains in the previous week due to heightened tensions between Russia and Ukraine, with no clear path to de-escalation in sight for this long-standing conflict.
Other precious metals also experienced declines on Monday, with silver and platinum futures both dropping over 1%.
Weakening Dollar Provides Relief for Metal Markets
The dollar retreated from a 13-month high on Monday following Bessent’s nomination, as analysts viewed him as a moderate and rational voice in the Trump administration.
This led to a sharp decline in Treasury yields, which in turn put pressure on the dollar.
Although the weakness in the dollar helped mitigate some losses in the metal markets, the relief was limited.
On the other hand, industrial metals saw gains, with benchmark copper on the London Metal Exchange rising 0.9% to $9,062.50 a ton, and December aluminum futures increasing by 0.6% to $4.1630 a pound.
Market participants were anticipating key economic data from China, the top importer, later in the week.