Democrats’ takeover of Congress sends gold surging past $4,050

A sharp rally takes Gold to around $4,065 in early Asian trading on Thursday.
Both chambers of the US Congress came under Democratic control following the party’s victory.
Friday’s focus will be the US employment figures for September.

A rally of over 3.60%, the strongest since mid-August, takes Gold price (XAU/USD) towards $4,065 in Thursday’s early Asian trading following a Democratic sweep of the US midterm elections. The precious metal is gathering upward momentum as traders await Friday’s US September employment figures for indications of the interest rate outlook.

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

Markets viewed the Democrats’ capture of both the US Senate and House of Representatives as an outcome likely to bring political gridlock, potentially limiting further fiscal expansion.

Gold became more affordable for overseas buyers as the US Dollar (USD) weakened, supporting demand for dollar-denominated bullion. The Democrats’ US midterm election victory had pushed the currency to its lowest level in more than a month on Wednesday.

Nevertheless, persistent inflation concerns and still-elevated oil prices would provide the US Federal Reserve (Fed) with greater scope to ease monetary policy. When interest rates rise, the opportunity cost of holding gold, which pays no yield, increases.

According to the CME FedWatch tool, current market pricing implies about an 82.7% chance of 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,” and added: “Oil is part of this, but more broadly the expectation is that high prices will be directly addressed by incoming politicians,”

Why is Gold back above $4000 as Dollar weakness and US fiscal concerns support precious metals?

A softer Dollar and growing unease over US fiscal prospects are helping drive the latest bullion rally, according to Scotiabank analysts. They observe 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.” Explaining the advance, they add 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 these factors are providing to precious metals.

Technical Analysis: Why does Gold’s outlook remain bearish below the 100-day SMA?

Trading beneath both the 20-day simple moving average (SMA) and the 100-day SMA leaves XAU/USD with a bearish near-term bias on the daily chart. These key trend indicators continue to suggest limited room for rallies. Meanwhile, a Relative Strength Index (14) reading of around 48 indicates neutral momentum, not oversold conditions. This suggests that sellers retain the structural edge despite the recent recovery from below $4,000.

The first upside hurdle is the Bollinger Bands’ 20-day middle band, near $4,075. Beyond that lie the 100-day SMA at $4,205 and the upper Bollinger band around $4,255. Support is next seen at the lower Bollinger band, approximately $3,900. A breach would likely pave the way for a deeper correction; if that floor holds, XAU/USD would remain in a broad consolidation below its key moving averages.

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

Common questions about Gold

What makes Gold an investment choice?

Throughout human history, Gold has served extensively as both a store of value and a medium of exchange. Today, its appeal goes beyond its lustre and use in jewellery: the precious metal is widely regarded as a safe-haven asset and, therefore, a good investment during periods of turmoil. Because it does not depend on a particular issuer or government, Gold is also commonly viewed as protection against inflation and currency depreciation.

Which buyers hold the most Gold?

The largest holders of Gold are central banks. To support their currencies during unsettled periods, they generally diversify reserves and purchase Gold, strengthening perceptions of their economies and currencies. 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 of Gold, valued at around $70 billion, in 2022. No higher annual purchase has been recorded since records began. Emerging-economy central banks, including those in China, India and Turkey, are expanding their Gold holdings rapidly.

How does Gold move relative to other assets?

Both the US Dollar and US Treasuries are major reserve and safe-haven assets, and Gold typically moves inversely to them. A decline in the Dollar tends to support Gold, allowing investors and central banks to diversify holdings during turbulent periods. An inverse relationship also exists between Gold and risk assets: rising stock markets generally put pressure on Gold prices, whereas selling in riskier markets tends to support the precious metal.

Which factors influence Gold prices?

Several forces can drive changes in Gold prices. Its safe-haven appeal means geopolitical instability or concerns about a deep recession can trigger a rapid price rise. Lower interest rates generally support Gold because it offers no yield, while a higher cost of borrowing usually puts pressure on the yellow metal. Nevertheless, the US Dollar (USD) drives most price movements, as Gold is denominated in dollars (XAU/USD). Dollar strength tends to restrain Gold prices; a weaker Dollar, by contrast, is likely to lift them.