Gold has reclaimed the $4,000 mark. The precious metal jumped more than 2% on Wednesday as the US dollar weakened and Treasury yields fell after Democrats won control of Congress, handing bullion a lift just days after it had been sliding on bets for a Federal Reserve rate hike.
The move
Spot gold climbed 2.2% to $4,016.01 an ounce, while US gold futures for December delivery rose 2.2% to $4,026.90. The rally was rapid. December futures traded between an overnight low of $3,929.30 and a high of $4,032.40. That means gold gained about $100 from its low in only a few hours.
Other metals joined in. Platinum jumped 3.3% to $1,462.20 and palladium rose 3.8% to $969.33.
Why the dollar matters
The political result worked on gold through the currency. The dollar index slid to a five-week low below 101.5 as the Democratic wins raised the prospect of legislative gridlock and reduced fiscal spending. A weaker dollar makes gold cheaper for buyers using other currencies.
Rates played a part too. Chris Weston of Pepperstone said a weaker dollar and a sharp decline in both nominal and real Treasury yields were clearly providing support for gold. Real yields, which strip out inflation, are a key driver of bullion because gold pays no interest. When they fall, holding gold becomes less costly.
Treasuries rose as investors bet that gridlock will curb deficit-expanding legislation and further Treasury issuance. Yields did not stay down all day, however. By the European morning, the 10-year Treasury yield had reversed its earlier decline. That shows how fragile the move can be.
A recovery after a bad stretch
The rebound comes after weeks of pressure. Gold is still down more than 7% year to date, while silver has tumbled almost 28%. The metal’s momentum faded this year as rising inflation, surging bond yields and hawkish central banks removed support.
Not all buying comes from traders. World Gold Council data showed that central bank gold purchases jumped 42% in the third quarter. That steady official demand has helped limit the downside even when speculative interest fades.
The Fed question remains
The Federal Reserve is still the main influence on bullion. Markets have been pricing a high chance of another rate hike in December, partly because oil above $100 has kept inflation elevated. One strategist noted that less fiscal stimulus argues for lower long yields and a softer dollar, but that is offset by debt-limit pressure in bills and a Fed leaning toward another hike.
Investors are looking ahead to non-farm payrolls data later this week for clues on the Fed’s policy path. A strong jobs number could revive hike expectations and send the dollar and yields higher, which would be a headwind for gold.
Oil and inflation
Energy is another factor. Brent crude traded around $104 on Wednesday after its lowest close since October 7, and US crude inventories fell 5.3 million barrels last week. Lower oil eases the inflation threat that has weighed on gold through the rate channel, while a rebound would do the opposite.
What traders are watching
Technical analysts say the key test is whether gold can hold its gains by the close. A close above $4,050 would open the door to $4,100. Another view put the bull case at $4,115 and the bear case at $3,920, with the jobs report on November 6 as the next big catalyst.
For investors, the message is mixed. The rally shows that gold still responds quickly to changes in the dollar and in the outlook for government borrowing. But with the Fed leaning toward tighter policy and inflation still elevated, gains could prove short-lived. The next few sessions will show whether $4,000 becomes a floor or just a waypoint.
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