Gold recovery continues amid post-election volatility as focus shifts to US jobs data

Gold extends its strong Wednesday advance, with traders weighing what Democratic control of Congress could mean for markets.
Expectations of a hawkish Fed continue to pose a significant obstacle for the non-yielding metal.
Bullish momentum in XAU/USD strengthens as the 21-day SMA provides the nearest support.

Buying interest keeps Gold (XAU/USD) on an upward path on Thursday as the US midterm election outcome stirs volatility in financial markets. At around $4,130 at the time of writing, XAU/USD is trading close to two-week highs and extending its recovery from last week’s year-to-date low of $3,870.

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

Wednesday saw the precious metal jump 3.64% and West Texas Intermediate (WTI) plunge 8%. Traders speculated that Democratic control of both chambers of Congress could curb funding for Trump’s military campaign against Iran and intensify pressure to bring the war, now in its ninth month, to an end.

Concerns over the fiscal outlook have also eased on the prospect of divided government, which could make fresh tax cuts or spending packages harder to pass. The resulting demand for Treasuries drives yields down and puts pressure on the US Dollar (USD). Alongside this, lower Oil prices alleviate some inflation worries, with the combined developments reviving demand for Gold.

Thursday, however, brings an easing of the downward pressure on the US Dollar, Treasury yields and Oil prices after Wednesday’s sharp falls. This should limit additional gains in Gold.

Bullion also continues to face a major challenge from the hawkish outlook for the Federal Reserve (Fed). Inflation risks persist because Oil prices remain substantially above pre-war levels. As the Fed remains committed to restoring inflation to its 2% target, traders see interest rates staying high for longer and expect a rate increase in December. The CME FedWatch Tool assigns that outcome a probability of around 79%.

By raising the opportunity cost of holding a non-yielding asset, higher borrowing costs put pressure on Gold.

US labour market releases are now in focus for their potential influence on expectations for the Fed’s policy trajectory. Thursday’s Initial Jobless Claims release will be followed by Friday’s Nonfarm Payrolls (NFP) report.

Technical analysis: Can bulls reach the 50-day and 100-day SMAs near $4,200?

With spot prices still beneath the medium- and long-term moving averages, the daily XAU/USD chart points to constrained upside. Immediate support for the recovery now comes from the 21-day simple moving average (SMA) at $4,077, although the metal continues to trade below the 50-day, 100-day and 200-day SMAs.

A Relative Strength Index reading near 52 and a shift into positive territory for the Moving Average Convergence Divergence (MACD) indicate stronger momentum. These signals suggest bullish pressure is rebuilding, but the underlying bearish structure has yet to be reversed.

If prices retreat, the first support lies around $4,077 at the 21-day SMA. Below that, attention turns to the psychological $4,000 mark and then the year-to-date low at $3,870.

For an advance, the first hurdles are the tightly grouped 100-day and 50-day SMAs, standing at $4,203 and $4,206, respectively. The 200-day SMA around $4,468 presents a stronger barrier further up. A decisive daily close above these clustered moving averages would be needed before the dominant bearish bias begins to ease.

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

Gold: Common Questions

What makes Gold an investment choice?

As both a store of value and a means of exchange, Gold has occupied an important place throughout human history. Beyond its lustre and use in jewellery, the metal is now widely regarded as a safe-haven asset, or an investment considered attractive during periods of turbulence. Its independence from any particular issuer or government also underpins its widespread appeal as a hedge against inflation and currency depreciation.

Which buyers hold the largest Gold reserves?

The largest holders of Gold are central banks. To help support their currencies during unsettled periods, they typically diversify reserves and purchase Gold, bolstering perceptions of economic and currency strength. Substantial Gold holdings can reinforce confidence in a country’s solvency. World Gold Council data show that central banks increased their reserves by 1,136 tonnes in 2022, with the purchases valued at around $70 billion. No annual purchase has been higher since records began. Emerging-economy central banks, including those in China, India and Turkey, are expanding their Gold reserves rapidly.

How does Gold move relative to other assets?

Both the US Dollar and US Treasuries are leading reserve and safe-haven assets, and Gold is inversely correlated with them. A weakening Dollar usually coincides with rising Gold prices, allowing investors and central banks to diversify holdings during turbulent periods. The metal also tends to move in the opposite direction to risk assets: stock market gains generally weigh on Gold, whereas selling in riskier markets usually supports it.

Which factors influence Gold prices?

Several forces can drive Gold prices. Because the metal is a safe haven, geopolitical unrest or concerns about a severe recession can trigger a rapid rise. Gold pays no yield, so lower interest rates generally support it, while a higher cost of borrowing typically acts as a drag. Even so, movements in the US Dollar (USD) account for most price changes, as Gold is denominated in dollars (XAU/USD). Dollar strength usually restrains Gold prices; a softer Dollar, by contrast, is likely to lift them.