Gold Prices Rise Amid US Presidential Election Uncertainty and Middle East Tensions Monday Nov 4 2024
The gold market is experiencing renewed interest as the yellow metal’s price ticks higher in early European trading on Monday. Investors eyeing the ongoing US presidential election and the Federal Reserve’s upcoming decision are favoring gold as a safe-haven investment. However, rising US bond yields and renewed interest in the dollar might limit further gains for gold in the near term.
Safe-Haven Demand Drives Gold Prices Higher
Geopolitical and Election Concerns
Gold prices (XAU/USD) have surged as safe-haven demand picks up in response to the approaching US presidential election and ongoing Middle Eastern geopolitical tensions. With these uncertainties looming, traders are turning to gold as a hedge against market volatility. Historically, periods of political and economic unpredictability lead investors to prioritize safe-haven assets like gold.
Impact of Middle East Tensions
The situation in the Middle East has also contributed to the recent uptick in gold prices. Increased geopolitical risks typically bolster gold demand, as investors seek to secure their wealth amidst potential economic instability. The combined factors of a contentious US election and Middle Eastern tensions are thus supporting the precious metal’s recent gains.
US Presidential Election: A Key Driver for Gold Prices
Tuesday’s US Election and Its Market Impact
The US election scheduled for Tuesday remains a major factor affecting gold prices. As markets brace for a potentially prolonged election result process, the likelihood of heightened volatility is substantial. According to PredictIt, there’s a 51% probability of a win for Vice President Harris, marking her first lead over Trump on this platform since early October. This small margin underscores the uncertainty around the election outcome, adding to the appeal of safe-haven investments like gold.
Anticipated Federal Reserve Rate Decision
The Federal Reserve is expected to announce its latest interest rate decision on Thursday, shortly after the election. With a 25 basis-point (bps) rate cut largely priced in by the markets, the Fed’s actions are being closely monitored. A cut is widely anticipated due to the ongoing economic challenges and slower job growth, as seen in October’s modest 12,000 increase in Nonfarm Payrolls (NFP) and the steady 4.1% unemployment rate. Lower interest rates typically favor gold as they reduce the opportunity cost of holding non-yielding assets like precious metals.
XAU/USD Daily Price Chart
Source: TradingView, prepared by Richard Miles
Technical Indicators: Gold’s Bullish Trend Prevails
EMA and RSI Signals for Continued Strength
Gold’s technical indicators reveal a bullish outlook in the longer term. The price remains comfortably above the 100-day Exponential Moving Average (EMA) on the daily chart, signifying strong support at current levels. Additionally, the 14-day Relative Strength Index (RSI) is positioned above the 50-midline, at approximately 60.20, which suggests the possibility of further gains as buying interest remains steady.
Price Levels to Watch
Key levels are forming in gold’s current trading range. Should gold maintain a sustained rise above the $2,790-$2,800 range, it could potentially move towards the next psychological level at $2,850. Conversely, if gold prices were to consistently fall below $2,715—the low from October 24—the next support zones would likely be at $2,624 and the critical $2,600 level.
Market Movers: Factors Shaping Gold Demand
ETFs and Investment Demand
The demand for Exchange-Traded Funds (ETFs) linked to gold is expected to remain high in the coming months. Commerzbank analysts note that ETFs should experience further inflows, bolstered by expectations of Federal Reserve rate cuts, elevated fiscal deficits, and high stock market valuations.
Central Bank and Jewelry Demand
While central banks are likely to continue purchasing gold, this year’s levels may fall short of the substantial buying seen over the past two years. Similarly, jewelry demand, which plays a significant role in the gold market, is anticipated to be lower than last year. However, the World Gold Council (WGC) has indicated a slight improvement in jewelry demand relative to previous projections, hinting at a moderate boost for gold demand in the fourth quarter.
Fundamental Analysis: Economic Indicators and Gold’s Trajectory
Slowing Economic Data Adds Pressure on Gold Demand
Recent economic data, such as the US Nonfarm Payrolls and the unemployment rate, have underscored the challenges facing the US economy. October’s NFP increase of just 12,000, the smallest since December 2020, has cast doubt on the strength of the labor market recovery. The relatively unchanged unemployment rate of 4.1% also highlights persistent challenges. Given this data, the Federal Reserve’s anticipated rate cut is expected to support gold prices by lowering the attractiveness of competing interest-bearing investments.
Potential Limitations Due to Rising Dollar and Bond Yields
Despite the safe-haven appeal, gold’s upside potential may face headwinds due to renewed demand for the US dollar and increasing US bond yields. Higher bond yields typically make gold less attractive as they increase the opportunity cost of holding non-yielding assets. If bond yields continue to climb, they could act as a counterbalance to the bullish sentiment driven by the US election and Middle Eastern tensions.
Future Outlook: What Lies Ahead for Gold Prices?
Short-Term Prospects Amid Election and Fed Decision
In the short term, gold prices are likely to remain volatile as the US election and Fed decision dominate market sentiment. The convergence of these major events could lead to temporary price swings in gold, with the potential for both upward and downward movements depending on the outcomes and their impact on investor confidence.
Long-Term Considerations: Economic Recovery and Inflation Risks
Looking beyond immediate market drivers, the broader economic recovery and inflation risks will be pivotal for gold’s longer-term trajectory. If inflationary pressures rise amid ongoing fiscal stimulus and an expanding money supply, gold could see increased demand as a hedge against inflation. Conversely, if economic recovery strengthens without triggering significant inflation, gold demand could moderate as investors shift back to equities and other higher-yielding assets.
Gold Remains Strong Amid Market Uncertainty
In summary, gold’s recent rise reflects its role as a safe-haven asset amidst significant global uncertainties, including the US presidential election and Middle Eastern geopolitical tensions. While the upcoming Federal Reserve decision could lend further support, rising bond yields and dollar strength might limit gold’s upside. Investors are closely watching key technical levels, with sustained gains above $2,800 likely to drive further price increases toward $2,850, while support levels near $2,715 and $2,600 may be tested if selling pressure intensifies.
As the markets brace for the outcomes of these major events, gold’s resilience will be tested, but its traditional appeal as a hedge against uncertainty and inflation remains a solid foundation for future demand.
