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Gold surges above $4,050 as Democrats take control of Congress
- Gold price jumps to around $4,065 in Thursday’s early Asian session.
- Democrats won control of both chambers of the US Congress.
- US September employment will take center stage on Friday.
Gold price (XAU/USD) gains momentum to near $4,065 during the early Asian session on Thursday. The precious metal rises over 3.60%, the biggest gain since mid-August, after Democrats swept the US midterm elections. Traders will closely monitor the US September employment data later on Friday for clues on the interest rate outlook.
Democrats seized control of both the US Senate and House of Representatives, an outcome markets interpreted as likely to cause political gridlock that could curb further fiscal expansion.
Democrats' victory in the US midterm elections dragged the US Dollar (USD) lower to more than a one-month low on Wednesday. The weaker USD boosted gold’s appeal by making dollar-priced bullion less expensive for overseas buyers.
However, signs that inflationary concerns persisted and oil prices remained elevated would give the US Federal Reserve (Fed) more room to pursue easier monetary policy. Higher interest rates increase the opportunity cost of holding non-yielding gold.
Markets are now pricing in about an 82.7% probability of a US rate hike in December, according to the CME FedWatch tool.
“More broadly, there is now a hope that a change in course could finally help fight inflation,” said Joshua Kutin, Columbia Threadneedle’s head of multi-asset solutions for North America. “Oil is part of this, but more broadly the expectation is that high prices will be directly addressed by incoming politicians,” Joshua added.
Gold surges back above $4000 as Dollar softness and US fiscal worries lift precious metals
Analysts at Scotiabank highlight that “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.” They note 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,” underscoring how renewed Dollar weakness and mounting fiscal anxieties are feeding directly into bullion’s latest rally.
Technical Analysis: Gold retains a negative outlook below the 100-day SMA
In the daily chart, XAU/USD keeps a bearish near-term bias as spot holds below the 20-day simple moving average (SMA) and the 100-day SMA. The price’s position beneath these key trend gauges suggests rallies remain capped for now, while the Relative Strength Index (14) around 48 signals neutral momentum rather than an oversold condition, hinting that sellers retain the structural advantage despite the recent bounce off sub-$4,000 levels.
On the topside, initial resistance emerges at the Bollinger Bands’ 20-day middle band around $4,075, followed by the 100-day SMA at $4,205 and the upper Bollinger band near $4,255. On the downside, the next notable support aligns with the lower Bollinger band at about $3,900, where a break would likely open the door to a deeper corrective leg, while holding above this floor would keep XAU/USD in a broad consolidation beneath its key moving averages.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
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