【TMGM Financial Recap】Democrats Sweep Congress, Sending the Dollar Tumbling as Gold Surges Over 3% in Its Biggest Daily Gain in Three Months!

Global gold markets staged a strong rebound on Wednesday. Spot gold surged 3.3%, its largest daily gain since mid-August, quickly recovering lost ground after briefly falling below $4,000.

Democrats secured an overwhelming victory in the midterm elections, winning both the House of Representatives and the Senate while making historic breakthroughs in some traditional Republican strongholds. Following the election results, the dollar fell to its lowest level in more than a month. As gold is priced in dollars, a weaker dollar directly increased its appeal to overseas buyers. Markets widely believe that Democratic control of Congress could lead to legislative gridlock in the United States. Such gridlock could weigh on economic growth, increasing the likelihood of the Federal Reserve adopting a more accommodative monetary policy in the future. Although investors still see roughly an 83% probability of a Fed rate hike in December, expectations for the medium- to long-term policy path have begun to shift.

The election outcome eased concerns over potentially disputed results, giving risk appetite a clear near-term boost. The S&P 500 climbed around 2% on Wednesday, while crude oil prices fluctuated sharply. This improvement in risk appetite typically weighs on the dollar, indirectly supporting gold.

In stark contrast to gold’s rally, the oil market underwent a sharp correction. Crude oil futures plunged as much as 8.7% on Wednesday. Markets quickly began betting that divided power in Washington following the Democratic takeover of Congress could hasten an end to the US and Israeli war against Iran.

Trump said the United States currently has no plans to launch strikes against Iran and acknowledged that the Iran issue played a role in the Republicans’ heavy midterm election defeat. Vice President Vance even publicly questioned the value of the war, blaming it entirely for the electoral setback. Sources close to Gulf governments indicated that a weakened Trump, facing a Democratic Congress capable of restricting his military options, has greater incentive to seek a deal. The likelihood of a full-scale offensive appeared to diminish, while the prospect of increased Middle Eastern crude exports and expectations of a de-escalation in the war combined to push oil prices lower.

Market Insight:

The ADP National Employment Report released on Wednesday showed that US private-sector employment increased by 86,000 in October, exceeding market expectations of 69,000. Investors are closely watching Friday’s nonfarm payrolls report for further clues about the interest rate outlook. The Fed left interest rates unchanged at its October meeting, and markets continue to price in a high probability of a December rate hike. Higher interest rates increase the opportunity cost of holding non-yielding gold, remaining a significant near-term headwind for the precious metal.