Gold prices dropped significantly on Tuesday after a strong U.S. jobs report and reports suggesting that Hezbollah supports efforts for a truce in its conflict with Israel. The potential for a de-escalation in the Middle East prompted traders to take profits, with XAU/USD trading at $2,615, down over 1%.
Shift in Market Sentiment Pressures Gold
While gold had remained near its year-to-date highs amid fears of an escalating Middle East conflict, signs of a diplomatic resolution spurred a sell-off. The move away from safe-haven assets like gold toward riskier investments reflected a shift in market sentiment. According to CNN, Hezbollah’s top official expressed support for a ceasefire in Lebanon on Tuesday, further fueling hopes for de-escalation.
As a result, XAU/USD dropped more than $35 to a daily low of $2,604 before recovering slightly. Rising U.S. Treasury yields also contributed to gold’s decline. The yield on the 10-year Treasury note remained above 4%, having gained over six basis points this week following last Friday’s September Nonfarm Payrolls report.
Traders Adjust Expectations for Federal Reserve Policy
Amid the market moves, traders reevaluated their expectations for the Federal Reserve’s next steps. While most Fed officials signaled a cautious approach to easing monetary policy, some, including St. Louis Fed President Alberto Musalem, projected just one more rate cut by the end of the year after backing September’s 50-basis-point reduction.
Meanwhile, the U.S. dollar held onto modest gains ahead of key economic data next week, including inflation figures, the Fed’s Meeting Minutes, Initial Jobless Claims, and the University of Michigan’s Consumer Sentiment report.
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