Gold prices extended their gains on Thursday as the US dollar weakened and Treasury yields declined following the Democratic Party’s victory in the midterm elections, while investors monitored oil prices and the outlook for Federal Reserve monetary policy.
Spot gold rose 1.6% to $4,125.68 per ounce at 04:50 ET (09:50 GMT), while gold futures increased 1.5% to $4,134.62 per ounce.
The US Dollar Index, which tracks the currency against a basket of international currencies, slipped 0.1% to 101.47.
The movements came as financial markets assessed the potential consequences of Democratic control of Congress for US government spending, taxation and the conflict with Iran.
Democratic Control of Congress Changes Fiscal Policy Expectations
The Democratic Party’s victory in both the House of Representatives and the Senate prompted a reassessment of the US fiscal outlook.
The dollar declined against major currencies, while Treasury yields moved lower across maturities.
Analysts at ANZ linked the bond market reaction to expectations that a Democratic-controlled Congress could restrict President Donald Trump’s proposed tax cuts and spending initiatives.
Such constraints could affect expectations for government borrowing and the inflationary consequences of fiscal policy.
Investors also considered how changes in the fiscal outlook might influence the Federal Reserve’s future interest rate decisions.
Falling Treasury Yields Support Bullion Prices
The decline in US government bond yields provided support for gold, which does not generate interest payments.
When yields on interest-bearing securities decrease, the opportunity cost of holding bullion generally falls.
A weaker US dollar can also increase demand from buyers using other currencies by reducing the cost of dollar-denominated gold.
These conditions coincided with Thursday’s increase in both spot prices and futures contracts.
Spot gold reached $4,125.68 per ounce, while futures traded at $4,134.62, reflecting gains of 1.6% and 1.5%, respectively.
The outlook for Treasury yields and the dollar remained relevant to gold trading as investors prepared for further US economic data.
Gold Still Trades More Than 20% Below Pre-War Levels
Despite the latest recovery, gold remained more than 20% below its price before the US-Iran conflict began in late February.
The war has contributed to higher energy costs and inflation, leading to expectations of tighter monetary policy.
Higher inflation can prompt central banks to raise interest rates or maintain restrictive borrowing conditions.
Such measures can weigh on gold because the metal does not provide a yield.
The recent decline in Treasury yields offered some support, although expectations of further US interest rate increases continued to influence the market.
Oil Prices Stabilise as Investors Assess Iran Developments
Brent crude futures traded above $95 per barrel on Thursday after a substantial decline in oil prices during the previous session.
The movement followed the US midterm election results and comments from President Donald Trump concerning the conflict with Iran.
Trump downplayed the likelihood of renewed US military strikes following the Republican Party’s electoral defeat.
The comments contributed to expectations that the risk of further escalation and additional disruptions to Middle Eastern energy supplies could diminish.
Investors assessed whether a reduction in geopolitical tensions might help ease pressure on international oil prices.
Lower energy costs could also affect inflation expectations, which remain important for monetary policy and the outlook for gold.
US Payrolls Report Could Influence December Fed Expectations
Investors were preparing for Friday’s US nonfarm payrolls report, which will provide updated information on employment conditions.
The figures could affect expectations for the Federal Reserve’s next interest rate decision.
The central bank was widely expected to increase borrowing costs in December as it sought to contain inflationary pressures.
Continued resilience in the labour market could give policymakers additional scope to raise rates without an immediate deterioration in employment conditions.
Alternatively, weaker employment figures could lead investors to reconsider the expected pace of monetary tightening.
Changes in interest rate expectations could influence Treasury yields, the dollar and gold prices.
Gold Market Outlook
Gold’s gains on Thursday followed a decline in the US dollar and Treasury yields as investors assessed the implications of the Democratic Party’s midterm election victory.
Expectations that Congress could limit the administration’s tax and spending proposals contributed to movements in bond and currency markets.
Meanwhile, lower oil prices and the possibility of reduced tensions with Iran remained relevant to the inflation outlook.
Gold continued to trade more than 20% below its pre-war levels, with attention turning to Friday’s US employment figures and their potential implications for the Federal Reserve’s anticipated December rate increase.
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