Gold prices hit a two-week high near $4,085 as political gridlock and lower energy costs weigh on the US Dollar and Treasury yields ahead of key labor market data.
The Democratic sweep of Congress sent oil sharply lower on speculation the election result would speed an end to the Iran war, and the article repeatedly cites slippage in oil prices as a driver of the gold rally. Cheaper energy also reduces inflation fears, indirectly supporting the case for fewer Fed rate hikes.
Oil fell sharply after the Democrats swept the US midterm elections, on speculation the result would speed an end to the Iran war.
The Dollar has weakened after the Democratic midterm sweep as investors trimmed bets on Fed rate hikes, and OCBC flags a softer USD as a driver of the gold rebound. Rate-hike expectations have not fully disappeared (70.9% December probability), and stronger NFP data on Friday could lift the Greenback again.
After the Democrats swept the midterm elections, investors trimmed bets on Fed rate hikes on expectations inflation fears will subside with falling energy prices, weakening the Dollar.
Signs of improvement in the US labor market from Friday's September jobs report could lift the Greenback, and markets still price a nearly 70.9% probability of a December Fed rate hike.
OCBC notes precious metals rebounded on lower US Treasury yields as markets reassessed political gridlock's implications for fiscal policy, with gridlock expected to constrain fiscal expansion and provide 'some relief to yields.' Bullish/bearish here applies to the yield itself, so falling yields are bearish; Friday's payrolls remain an important test.
Strategists at OCBC say political gridlock after the Democratic sweep may constrain fiscal expansion and weigh on US growth, providing some relief to yields.
Gold prices climbed to a two-week high near $4,085, buoyed by a softer US Dollar and falling oil prices following the Democratic sweep of the US midterm elections. Investors are now recalibrating expectations for Federal Reserve rate hikes, though markets still price in a 70.9% probability of a December increase. Friday's Nonfarm Payrolls report serves as a critical test for the metal's momentum.
Gold is benefiting from a weaker US Dollar and lower oil prices, which have eased immediate inflation fears and led investors to trim aggressive rate-hike bets.
The Nonfarm Payrolls report could shift the outlook for Fed policy; a stronger-than-expected jobs number might lift the Dollar and Treasury yields, potentially capping gold's recent rally.