Why has gold reclaimed $4,000 as Democrats’ Congress win unsettles the US Dollar?

• Gold advances as renewed demand follows fiscal worries sparked by the Democrats’ victory.
• Further upside could be capped by expectations that the Fed will raise rates again in December.
• With the RSI moving back towards neutral, XAU/USD encounters immediate resistance near $4,074 at the 20-day SMA.

Gold (XAU/USD) has surged back above $4,000 on Wednesday as concerns over political gridlock in Washington lift demand. The US midterm results have paved the way for a divided government. XAU/USD is trading at around $4,041 at the time of writing, a gain of 3% for the day.

With Democrats taking control of both houses of Congress, the Trump administration will require their backing for new legislation, spending packages, additional tax cuts and any increase in the debt ceiling.

As political uncertainty strengthens Gold’s safe-haven appeal, it is also putting pressure on the US Dollar, reducing the cost of bullion for holders of other currencies. Trading near five-week lows at around 101.40, the US Dollar Index (DXY) is down 0.44% on the day. The index measures the Greenback against a basket of six major currencies.

Can Gold sustain its rebound as US fiscal risks grow and the Fed outlook holds steady?

Sustaining the recovery may prove difficult for the yellow metal: tensions in the Middle East are keeping energy prices elevated and fuelling inflationary pressure, leaving the Federal Reserve (Fed) and other major central banks on a hawkish course. As Gold offers no yield, higher borrowing costs increase the opportunity cost of holding it and weigh on prices.

In the view of strategists at Societe Generale, the Democrats’ US blue wave “should not change the direction of travel for the Fed, at least not in the short term,” and they continue to regard “a 25bp rate increase in December” as “a high probability event.” Ahead of the Treasury’s quarterly refunding announcement later today, the strategists point out that “futures for June -27 flatten to 55.5bp (-2.5bp)” and “the 2s/10s curve trades flat at 33bp,”.

On fiscal policy, however, Societe Generale’s economics team offers a warning: “with regard to the US fiscal trajectory,” they “see greater risk of government shutdown,” which they suggest “may explain the rebound in Gold to over $4000.”

According to the CME FedWatch Tool, traders assign an 82% probability to a rate increase in December. Expectations of additional tightening could, in turn, help contain the US Dollar’s losses.

For further indications of the Fed’s policy direction, markets are now looking to US economic releases. The ADP Employment Change report and October’s ISM Services PMI are due on Wednesday. Weekly Initial Jobless Claims follow on Thursday, before Friday’s Nonfarm Payrolls (NFP) report.

Technical Analysis: can a strengthening recovery overcome the bearish bias?

A mildly bearish near-term outlook persists on the daily XAU/USD chart, with prices still below $4,074, where the 20-day simple moving average (SMA) forms the middle Bollinger band. Further overhead resistance lies near $4,253 at the upper Bollinger band, indicating that advances remain constrained. Momentum signals are mixed: the Relative Strength Index (RSI) has recovered to 46 in neutral territory, while the Moving Average Convergence Divergence (MACD) indicator remains negative but is stabilising.

The psychological $4,000 mark provides the first support on a decline. Below it lie the lower Bollinger Band near $3,894 and the yearly low of $3,870 reached last week. A close above the middle Bollinger band at $4,074, by contrast, would relieve downward pressure. Even so, firmer resistance lies at the upper band near $4,253, followed by the wider structural barrier at $4,400.

(The technical analysis of this story was written with the help of an AI tool. Learn more.)