【TMGM Financial Recap】Can Gold Sustain Its Rally Towards $4,200 as Investors Await Nonfarm Payrolls?

Cautious optimism replaced pessimism as several factors combined to lift gold on Thursday to its highest level in more than two weeks, extending this week’s recovery to over $200. By Friday, spot gold was moving in a tight range, with the market awaiting the US October nonfarm payrolls report later in the day.

A weaker dollar and lower US Treasury yields have together provided the immediate impetus for gold’s rise. With the US Dollar Index hovering near its lowest level since 30 September, gold priced in dollars became more affordable for investors holding other currencies. At the same time, a fall in the 10-year US Treasury yield to a nearly two-month low substantially lowered the opportunity cost of holding gold, which offers no yield.

Further interest rate increases have not been ruled out by markets. Instead, falling energy prices have tempered inflation worries and could lessen the need for additional hikes. Even this modest change in expectations has offered gold some near-term relief. The sharp fall in oil prices on Wednesday lent further support to the view that inflation pressures could subside temporarily.

Gold’s gains coincided with fresh comments from Federal Reserve officials. On Thursday, the presidents of the Cleveland and Richmond Federal Reserve Banks publicly backed a gradual approach to raising rates. While emphasising that monetary policy must become restrictive to return inflation to the 2% target in a timely manner, they preferred smaller, more frequent adjustments to limit disruption for households, businesses and financial markets.

Beyond these immediate influences, the US midterm election outcome has been a more fundamental driver. Markets were quick to reassess both the situation in Iran and the prospects for artificial intelligence investment after Democrats regained control of Congress. Much of Wednesday’s steep fall in oil prices reflected expectations that the political change could lower the risk of further escalation in the US–Iran conflict. Thursday’s recovery in oil prices, however, indicated that hopes of a quick end to the war had faded somewhat.

Technology stocks also faced heavy selling, with AI-related sectors particularly hard hit. A sharp retreat in the Nasdaq reflected worries that local opposition and stricter approval procedures could delay data centre construction, with consequences for capital expenditure and economic growth momentum over the next year or two.

Market Insight: What Could These Shifts Mean for Gold?

Taken together, fluctuating oil prices and slower investment point to some potential easing in near-term inflation pressures, even as considerable uncertainty clouds the longer-term outlook. In such uncertain conditions, capital often flows into gold because it serves as a hedge against inflation, geopolitical risks and currency depreciation.

Friday’s US nonfarm payrolls report is now the key focus for investors. If the figures are significantly weaker, expectations of a December rate hike could recede further, giving gold additional upside momentum. Conversely, a strong report could bolster the argument for further Fed tightening and put gold prices under pressure.