$4,000 reclaimed: Gold rebounds as Democrats’ Congress victory unsettles US Dollar

• Fiscal concerns following the Democrats’ victory renew demand for gold, lifting prices.
• Further upside could be capped by expectations of another Fed interest rate increase in December.
• Near $4,074, the 20-day SMA presents immediate resistance for XAU/USD as the RSI moves back towards neutral.

Gold (XAU/USD) is up 3% on the day at the time of writing. Trading around $4,041, the metal has regained $4,000 in Wednesday’s rally. The US midterm results point to divided government, increasing the risk of political deadlock in Washington.

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

Political uncertainty has restored gold’s safe-haven appeal and put pressure on the US Dollar. That weakness makes bullion less expensive for holders of other currencies. Down 0.44% on the day, the US Dollar Index (DXY) stands around 101.40, close to five-week lows. The index measures the Greenback against a basket of six major currencies.

Gold Recovers as US Fiscal Risks Mount; Fed Outlook Unchanged

Elevated energy costs stemming from Middle East tensions continue to fuel inflationary pressure, keeping the Federal Reserve (Fed) and other major central banks on a hawkish course. This could make gold’s recovery difficult to sustain. As borrowing costs rise, the opportunity cost of holding the non-yielding metal increases, weighing on its price.

For Societe Generale strategists, 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, they observe 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 warns that, “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.”

An 82% probability of a December rate increase is priced in by traders, according to the CME FedWatch Tool. Expectations of additional tightening could also help limit losses in the US Dollar.

Upcoming US economic releases are now in focus for further signals on the Fed’s policy direction. 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).

Technical Analysis: $4,074 Caps Faster Recovery; Bearish Bias Persists

Below the 20-day simple moving average (SMA), which forms the middle Bollinger band at $4,074, XAU/USD retains a mildly bearish near-term bias on the daily chart. Further overhead resistance lies near $4,253 at the upper Bollinger band, indicating limited scope for rallies while momentum signals remain mixed. The Relative Strength Index (RSI) has recovered to 46 in neutral territory. Meanwhile, the Moving Average Convergence Divergence (MACD) indicator remains negative, although it is stabilising.

The psychological $4,000 mark provides immediate downside support. Below it lie the lower Bollinger band near $3,894 and last week’s yearly low of $3,870. A close above the middle Bollinger band at $4,074 would reduce downward pressure. Stronger resistance, however, lies at the upper band near $4,253, followed by the broader structural barrier at $4,400.

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