Gold, Oil Tumble Ahead of FOMC Minutes

Gold (XAU) declined by around 2% on Monday, 25 November, ending its 5-day winning streak amidst a possible de-escalation in the Middle East and the announcements of the next US Treasury Secretary and planned tariffs against Mexico and Canada.

Oil prices followed gold’s lead lower due to rumours of a possible ceasefire between Israel and Hezbollah, with Brent (EB) and WTI (CL) down by 2.9% and 3.2% ahead of Thanksgiving.

Meanwhile, many investors remained keen to see how the FOMC minutes reflect reduced chances of the 25-basis point rate cut in the upcoming Federal Reserve December meeting, as those have fallen to 56% from 62% a week ago. 

Gold Falls on Risk Reduction

The price of gold declined around $100 per ounce on Monday,  similar to the selloff seen after the elections (on 6 November). 

The move was driven by multiple factors, including reports of a potential ceasefire agreement between Israel and Hezbollah, the appointment of Scott Bessent as the new US Treasury secretary and a stronger dollar arising from a proposed 25% tariff on Canada and Mexico imports to the US. (Source: CNCB)

G7 diplomats and foreign ministers, including ministers from the ‘Arab Quintet’, which includes Saudi Arabia, Egypt, Jordan, the UAE, Qatar, and the Arab League Secretary-General, all favoured a ceasefire in both Gaza and Lebanon at a meeting in Italy on Monday. A truce in Lebanon is closer than ever on the heels of recent International Criminal Court (ICC) arrest warrants, Italy’s minister Antonio Tajani suggested, as the urgency for peace grows ahead of Donald Trump’s inauguration in January.

After a consecutive series of winning streaks, a reduction in risk premiums stemming from Trump’s selection of Bessent as the new Treasurer also weighed on gold. Bessent is a seasoned fund manager perceived as being hawkish on fiscal policy and dovish on trade war, expected to ease trade escalation under a Trump administration. Interestingly, the session also saw a counter-announcement from Trump on that front that supported the rise in the dollar, which is negative for the price of gold. 

The rise in the dollar weighed on gold prices on the back of rising fears of a possible trade war escalation following a Trump post on his own social media platform, Truth Social. The President-elect said he would impose tariffs as high as 25% on all imports from Canada and Mexico when he assumes office and extend tariffs on goods from China for an additional 10%. However, participants will be more interested in seeing whether Trump follows through with the 60% tariffs on Chinese goods before making final decisions on the potential impact on markets. 

Oil Pressured by Truce Deal Hope

Despite oil prices catching a few sessions in gains last week due to rising tensions between the West/Ukraine and Russia, the potential truce deal in the Middle East reduced geopolitical risks or fears of a possible major disruption in oil supplies. 

Some analysts call for cautious optimism about the potential impact surrounding production quota by the OPEC+ cartel, Trump’s fossil-fuel-heavy agenda and the risk of rising geopolitical tension in Ukraine following the use of hypersonic missiles and US-made weapons. Another group of analysts agrees that the OPEC+ group will extend production cuts in their 1 December meeting this week, citing a lack of price recovery. 

OPEC+ member Azerbaijan energy minister Parviz Shahbazon told Reuters that oil production cuts could be discussed during the meeting, with other sources saying the cartel may delay output increases due to soft demand. However, this comes as crude oil imports from China are expected to rise following import quotes for the end of the year, revealing an additional 116,800 barrels per day (bpd). Notably, China also increased its 2025 import quota by 6% in October.

Meanwhile, the gold-oil ratio, an indicator of global economic health, rose to 39.06 in November, the highest level in several years. This may be suggesting a period of high uncertainty in monetary terms as demand for oil seemingly does not outsize demand for gold, pointing to a greater focus on economic factors. (Source: OilPrice)

FOMC Mins and PCE in Focus

With both gold and oil prices under pressure and the dollar firmer, the FOMC Minutes and PCE inflation will provide further insights into the Fed’s view on the balance of risks in light of “remarkably good” economic data. 

Since the last meeting, when Fed Chair Jerome Powell acknowledged “somewhat elevated” inflation and cooling labour markets, investors have become more hawkish on the path to lowering rates. Money markets in the US price in an over 50% chance of another rate reduction in December and around three additional rate cuts in 2025 by the Fed at a time when participants expect a pro-inflationary administration in the White House. The chances of a rate cut in December stood at 62% a week ago.

The upcoming release of PCE on Wednesday could also sway the Fed’s stance on policy, with a beat of economist expectations further reducing the chances of cutting interest rates in December.  "I have some confidence that it's [inflation] gently trending down," Federal Reserve Bank of Minneapolis President Neel Kashkari told Bloomberg on Monday, signalling openness to proceed with a cut in December despite contracting market expectations.

The PCE inflation data are projected to show an increase in core PCE to 3.7% for October from 3.5% in September, which will shape market expectations around the Fed's future policy.

Wrap Up

Gold and oil prices tumbled on Monday due to a potential ceasefire in the Middle East. The announcement of Scott Bessent as the new US Treasury Secretary and proposed US tariffs on imports from Canada and Mexico further pressured gold. However, the potential impact of the FOMC minutes and PCE inflation readings should be watched closely, along with possible escalation in Ukraine and the upcoming OPEC+ meeting on 1 December.