$4,050 breached: Gold surges as Democrats gain control of Congress

$4,065: Gold surges towards this level in early Asian trading on Thursday.
Both chambers of the US Congress came under Democratic control.
Friday’s focus turns to the US September employment figures.

Gold price (XAU/USD) approaches $4,065. Momentum strengthens in Thursday’s early Asian trading, with the precious metal advancing over 3.60%, its largest gain since mid-August, following the Democrats’ sweep of the US midterm elections. For signals on the interest rate outlook, traders will scrutinise the US September employment figures due later on Friday.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

With Democrats taking both the US Senate and House of Representatives, markets saw an increased likelihood of political gridlock that could constrain further fiscal expansion.

On Wednesday, the US Dollar (USD) fell to its lowest in more than a month following the Democrats’ midterm election victory. That decline made dollar-denominated bullion cheaper for overseas buyers, enhancing gold’s appeal.

However, persistent inflation concerns and still-elevated oil prices would leave the US Federal Reserve (Fed) with greater scope to ease monetary policy. Holding non-yielding gold carries a higher opportunity cost when interest rates rise.

The CME FedWatch tool shows that markets now assign about an 82.7% probability to a US interest rate increase in December.

Joshua Kutin, Columbia Threadneedle’s head of multi-asset solutions for North America, said: “More broadly, there is now a hope that a change in course could finally help fight inflation,” adding: “Oil is part of this, but more broadly the expectation is that high prices will be directly addressed by incoming politicians,”

$4000 regained: Gold rallies as Dollar weakness and US fiscal concerns support precious metals

Scotiabank analysts describe the rebound: “the price gold is showing an impressive near-3% gain on the day, climbing back above the psychologically important $4000/oz level as the price of silver pushes to a near-5% pop.” On the drivers, they observe that “the gains in precious metals may be attributed to a combination of the broader USD’s moves, as well as market participants’ concerns related to the US fiscal outlook,” highlighting the direct support for bullion’s latest advance from renewed Dollar weakness and growing fiscal unease.

100-day SMA caps Gold: Technical outlook stays negative

Below both the 20-day simple moving average (SMA) and the 100-day SMA on the daily chart, spot XAU/USD retains a bearish near-term bias. These key trend indicators suggest upside remains constrained for now. Meanwhile, the Relative Strength Index (14), at around 48, indicates neutral rather than oversold momentum. Despite the recent rebound from below $4,000, sellers therefore appear to retain the structural advantage.

The Bollinger Bands’ 20-day middle band, around $4,075, provides the first upside resistance. Beyond it lie the 100-day SMA at $4,205 and the upper Bollinger band near $4,255. Support next comes into focus at the lower Bollinger band, about $3,900. A breach would likely pave the way for a deeper correction; maintaining this floor would leave XAU/USD consolidating broadly below its key moving averages.

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

Gold: Key Questions

Gold investment: What attracts buyers?

Widely used as both a store of value and a medium of exchange, gold has held a central place throughout human history. Beyond its lustre and use in jewellery, it is now widely regarded as a safe-haven asset, making it a favoured investment in periods of turmoil. Its independence from any particular issuer or government also underpins its widespread role as a hedge against inflation and currency depreciation.

Gold holdings: Who are the largest buyers?

No group holds more gold than central banks. To support their currencies during turbulent periods, they typically diversify reserves and purchase gold, reinforcing perceptions of economic and currency strength. Substantial gold reserves can bolster confidence in a country’s solvency. World Gold Council data show that central banks increased their reserves by 1,136 tonnes in 2022, worth around $70 billion. That marked the largest annual purchase on record. Emerging-market central banks, including those in China, India and Turkey, are rapidly building their gold reserves.

Gold correlations: How do other assets influence it?

The US Dollar and US Treasuries, both major reserve and safe-haven assets, have an inverse correlation with gold. Dollar depreciation generally supports gold, allowing investors and central banks to diversify holdings during turbulent periods. Risk assets also tend to move in the opposite direction to gold: stock-market advances usually weigh on its price, whereas selling in riskier markets generally supports the precious metal.

Gold prices: What are the main drivers?

Many factors influence gold prices. Its safe-haven appeal means geopolitical instability or fears of a severe recession can trigger a rapid rise. With no yield of its own, gold generally benefits from lower interest rates, while higher borrowing costs usually exert downward pressure. Most price moves nevertheless hinge on the US Dollar (USD), as gold is quoted in dollars (XAU/USD). Dollar strength tends to restrain gold prices; a weaker Dollar is more likely to lift them.