Gold Price Recovery Amid US Election Concerns: Key Market Movers and Technical Analysis
Gold prices have shown a resilient bounce from early-session losses, finding support from safe-haven demand as uncertainty looms around the US election. Trading around $2,735, gold (XAU/USD) appears to be holding steady, with both geopolitical tensions in the Middle East and potential Federal Reserve (Fed) policy changes adding complexity to the current market sentiment.
Market Context: Key Influences on Gold Price Movement
The gold market is navigating a confluence of economic and geopolitical events, which together are shaping the precious metal’s recent trajectory. Here’s a look at the main factors driving these price movements:
1. US Election Uncertainty and Safe-Haven Demand
As the US heads into a highly contested presidential election, the race between Democratic candidate Kamala Harris and former President Donald Trump remains tightly knit, adding political uncertainty. This heightened level of unpredictability in the political landscape has led to increased demand for safe-haven assets like gold. Investors, wary of potential election-induced volatility in other financial markets, are turning to gold to protect their portfolios.
2. Decline in US Treasury Bond Yields
The downward trend in US Treasury bond yields has played a crucial role in supporting gold prices. With expectations mounting around the Fed’s likely response to a cooling US labor market, the market is betting on further interest rate cuts. Consequently, US Treasury bonds, particularly the benchmark 10-year note and the two-year Treasury, have seen notable declines in yields, registering the biggest one-day drop in months. Since gold is a non-yielding asset, lower bond yields often make gold a more attractive investment by comparison.
3. Geopolitical Tensions in the Middle East
The ongoing hostilities in the Middle East, particularly between Iran and Israel, are another critical factor sustaining gold’s appeal as a safe haven. Recently, Iran indicated a strong response to Israel’s October strikes on its territory, with the US stepping in to issue a warning against any further attacks on its ally, Israel. This escalation of tensions continues to underpin support for gold, as investors seek refuge from the geopolitical uncertainty.
4. Weakened Demand for the US Dollar
The US Dollar (USD), often considered an alternative to gold for safe-haven demand, is experiencing weakened demand amid these developments. The USD attempted a modest recovery from a two-week low, yet ongoing Fed rate cut bets and the decline in bond yields have restricted further USD strength, reinforcing the appeal of gold.
XAU/USD Daily Price Chart
Source: TradingView, prepared by Richard Miles
Daily Market Digest: What’s Shaping Gold Price Sentiment?
US Presidential Race and “Trump Trade” Unwinding
The market sentiment surrounding gold is significantly impacted by the evolving dynamics in the US presidential race. With former President Donald Trump’s winning odds decreasing, we see an unwinding of the so-called “Trump Trade”—a term associated with policies and market moves favoring pro-growth, risk-on assets. This unwinding is contributing to a reduction in bond yields, which inversely supports gold prices.
Economic Indicators Pointing to Fed Rate Cuts
The Federal Reserve is widely expected to adopt further rate cuts, spurred by signals of a cooling labor market in the US. This anticipation of lower interest rates bolsters gold’s position, as a rate cut environment reduces the opportunity cost of holding non-yielding assets like gold. Additionally, the decline in bond yields further strengthens gold’s appeal by creating a relatively more favorable landscape for non-yielding assets.
Impact of Middle Eastern Tensions on Gold Price
The heightened tensions between Iran and Israel continue to feed into safe-haven demand. Investors are monitoring the developments closely, given the potential for these tensions to spill over and impact broader global stability. The gold market benefits from this geopolitical tension, as the risk of further escalation drives buyers towards safe assets.
Technical Analysis: Navigating Support and Resistance Levels
A technical outlook reveals that gold prices may see a further upside if certain resistance levels are broken. Meanwhile, mixed oscillators on the daily chart advise caution, suggesting that price action could go either way in the near term.
Key Support Levels to Watch
The gold price faces its first significant support around the $2,720-$2,715 region. A sustained drop below this horizontal support could signal bearish momentum, potentially challenging the lower end of the ascending channel near the $2,690 area. Should prices break below this zone, we could see a more pronounced correction, bringing gold towards the next key support.
- Immediate Support: $2,720 – $2,715
- Trend-Channel Support: Near $2,690
A break below $2,690 would likely lead to intensified selling pressure, further reinforcing a bearish outlook in the near term.
Resistance Levels and Potential Upside Triggers
On the upside, gold has some immediate resistance around the $2,748-$2,750 region, which, if surpassed, could open up the path to higher levels. Further resistance lies at the recent high of $2,790, followed by the psychological $2,800 mark. A breakout beyond these levels would signal continued bullish sentiment, potentially allowing prices to re-test the ascending channel’s resistance, estimated around the $2,820 zone.
- Immediate Resistance: $2,748 – $2,750
- Higher Resistance: $2,790, followed by $2,800
- Channel Resistance: Around $2,820
A sustained rally past $2,820 would be a strong bullish trigger, encouraging further buying interest and possibly extending gold’s well-established uptrend.
Outlook and Future Considerations
The upcoming ISM Manufacturing PMI report could bring some short-term fluctuations in gold prices, although it is unlikely to shift the overarching trends. Much of the immediate outlook will hinge on the US election outcome and subsequent policy responses by the Fed. In particular, a decisive election result or unexpected Fed actions could have a substantial influence on gold prices.
Summary
The interplay of US election concerns, Fed rate cut expectations, declining bond yields, and geopolitical tensions has created a supportive environment for gold prices, despite the recent pullback. Here are the key points to consider:
- US Election Uncertainty: Safe-haven demand for gold remains strong due to political uncertainty.
- Fed Rate Cut Speculation: Expectations for further rate cuts add support for gold, keeping bond yields low.
- Middle East Tensions: The Iran-Israel conflict heightens safe-haven demand, adding a risk premium to gold prices.
- Technical Levels: Key support around $2,715, with resistance at $2,750 and $2,800.
With political and economic events playing out in the coming days, gold’s price path could see considerable volatility.
