As the world grapples with shifting political landscapes and economic turbulence, gold prices have begun to drift higher, particularly in early trading on a Monday in Asia. This upward movement is largely attributed to increased safe-haven demand as investors navigate uncertainties surrounding the upcoming U.S. presidential election and ongoing tensions in the Middle East. As traders prepare for a decisive election day Tuesday, they watch closely for the Federal Reserve’s policy announcements that could also influence precious metal prices.
Markets are notoriously sensitive to political events, and the U.S. presidential election is no exception. Analysts predict that regardless of the election outcome, the demand for gold could see significant alterations. Reports suggest potential inflows into exchange-traded funds (ETFs), driven in part by anticipated interest rate cuts, high fiscal deficits, and a stock market that many perceive as overvalued. However, the overarching influence of the election result is expected to weigh heavily on investment trends in the fourth quarter of the year.
The analysts at Commerzbank have highlighted that while gold purchases by central banks are likely to remain robust, they may not reach the high levels recorded over the past two years. Jewelry demand, on the other hand, is projected to decline relative to last year, though slightly more favorable than previous forecasts from the World Gold Council (WGC). PredictIt, a political market forecasting platform, has noted a 51% probability of a Harris victory, suggesting a shifting tide in perceptions as we approach the election.
A closer examination of recent economic data reveals additional factors contributing to the price fluctuations of gold. The latest Non-Farm Payroll (NFP) report highlights an increase of just 12,000 jobs in October—significantly below the market consensus of 113,000—indicating a potential slowdown in employment growth. This contrasts with the 223,000 job gain (revised down from 254,000) noted in September, marking this pay period’s increment the lowest since December 2020. Despite these figures, the unemployment rate remains stable at 4.1%, aligning with current expectations.
As financial markets have largely accounted for a possible 25-basis-point interest rate cut by the Federal Reserve in their upcoming November meeting, the atmosphere around gold seems favored for the moment. Prices of gold have managed to stabilize above the critical 100-day Exponential Moving Average (EMA). Moreover, the 14-day Relative Strength Index (RSI) resting in the positive territory near 60.20 suggests resilience in gold’s price action, indicating that support levels could hold strong in the days to come.
The technical landscape around gold pricing reveals pivotal support and resistance levels that traders are monitoring closely. A continuous rally beyond the psychological threshold of $2,790-$2,800 may well propel XAU/USD up toward the $2,850 mark. Conversely, consistent trades below the October 24 low of $2,715 might invite further downside pressure, potentially pushing prices to the September 30 low of $2,624, with a subsequent psychological round mark of $2,600 looming as a possible target should bearish sentiment persist.
The relationship between interest rates and the U.S. dollar has long been established as a critical driver of gold prices. The Federal Reserve plays a pivotal role in this dynamic through its policy decisions. With the dual mandates of promoting maximum employment and maintaining price stability, the Fed often resorts to interest rate adjustments to achieve these goals. A stronger U.S. dollar typically accompanies higher interest rates, making gold more expensive for foreign investors and thus dampening demand.
In circumstances of extreme financial distress, the Fed may adopt unconventional measures like Quantitative Easing (QE), which enhances liquidity by allowing the central bank to purchase high-grade bonds. This policy can siphon value from the dollar and bolster the allure of gold. On the flip side, when the Fed engages in Quantitative Tightening (QT), it signals a tighter monetary policy that could reinforce the dollar’s strength.
As the election looms and economic indicators suggest potential volatility, investors in gold must remain vigilant. The ongoing instability and the Fed’s forthcoming decisions represent critical variables that could both directly and indirectly impact the gold market. While short-term gains may be achievable, the long-term outlook will be shaped significantly by political outcomes and prevailing economic conditions. Investors are advised to exercise caution, prioritizing sound strategies that accommodate the likely shifts in demand stemming from these unfolding events. The precious metal may find itself a ultimate hedge against uncertainty, making it a focal point in turbulent times.