Gold Prices Sink on 'Fiscal Hawk' Bessent Tackling America's Debt
Monday, 11/25/2024 14:53
GOLD PRICES sank on Monday, plunging 3.5% from last week's new all-time records in Euros and UK Pounds as the US Dollar fell with US bond yields and global stocks rose following President-Elect Donald Trump's nomination of hedge-fund manager Scott Bessent as US Treasury Secretary, tasked with tackling Washington's ever-growing debt,
writes Atsuko Whitehouse at BullionVault.
Israel meantime suggested it is
days away from a cease-fire deal with Iran-backed Hezbollah fighters in Lebanon.
Spot gold priced in the Dollar fell 2.2% as Monday's trading began in Asia before falling further to $2638 per Troy ounce, erasing half of last week's 4.8% surge – gold's biggest weekly gain since early March – made amid
warnings that Russia's 1,000-day war in Ukraine risks escalating into a global conflict.
The US Dollar Index meanwhile fell 0.6% from the previous session's 2-year high on its trade-weighted index, and 10-year US Treasury yields – a benchmark for government and corporate borrowing rates – dropped to the lowest in 2 weeks after Trump named former George Soros associate and now Red Square hedge-fund owner Bessent for the Treasury.
New York's S&P500 index pointed 0.5% higher ahead of the open and the pan-European Stoxx 600 index rose 0.2% despite Germany's business outlook weakening in November.
"The market view is that Bessent is a 'safe hands' candidate," says Stephen Spratt, strategist at French bank Societe Generale.
"Scott is a fiscal hawk," adds bond trader Glen Capelo, now at investment bank and broker-dealer Mischler Financial Group, in a widely-quoted comment.
"He wants to rein in [government] spending. He definitely will be positive overall for the economy and the markets."
The US government's debt is now viewed as the biggest risk to financial stability among finance professionals, investment managers and academics
surveyed by the Federal Reserve this month.
Fiscal sustainability surpasses concerns about persistent inflation and comes ahead of escalating tensions in the Middle East, US policy uncertainty, and the risk of a US recession.
The gross national debt of the United States
officially reached $36 trillion last Thursday, just over 3 months after hitting $35trn according to the US Treasury.
Interest payments on the US national debt are projected to cost the government $1.2 trillion for the fiscal year ending in October, making it the third-largest budgetary expense after Social Security and Medicare benefits.
The non-partisan Committee for a Responsible Federal Budget (CRFB) estimated that
Trump's policies could add $7.5 trillion to the national debt between 2026 and 2035 if enacted.
But "if the Trump tax cuts get extended or made permanent, I think there have to be pay-fors," Bessent said in June, vowing that a Republican administration would focus on reducing the long-term debt and short-term deficits by ensuring that an extension of the 2017 tax cuts signed into law by Trump – set to expire next year – would be
offset by higher taxes and/or lower spending elsewhere.
Bessent has also played down Trump's promised trade tariffs, calling the returning President's plans for a universal 10% import tariff on all foreign-made goods, plus 60% trade tariffs on Chinese imports and a 100% tariff on all imported cars, only "a maximalist" position used solely as a negotiating tactic.
Like gold, oil prices dipped on Monday after surging 5.8% last week to a 2-week high. Natural gas prices, however, held near year-to-date highs after a 12.7% surge in the last session, reaching their highest level since October 2023.
This surge followed Gazprom's unexpected suspension of gas supplies to Austria on 16 November, coinciding with US sanctions on Gazprombank, the last major Russian financial institution previously exempt from penalties. Additionally, unseasonably cold temperatures across the Northern Hemisphere have spiked heating demand.
Silver, primarily an industrial metal, today tracked gold lower but fell only 1.8% to $30.78 per ounce, nearly halving last week's gains.
Gold priced in Euros declined to €2511 on Monday, retreating almost €100 from its 45th new high this year, while
the UK gold price in Pounds per ounce dropped through £2100 after making its 41st record high of 2024 last session.
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