Gold Holds Firm as Fed Rate Hike Bets Ease

Gold slipped below $4,050 an ounce on Friday but was still on track to gain more than 4% for the week following a sweeping Democratic victory in the US midterm elections. Markets expect Democrats to push for an end to the Iran conflict, which could drive oil prices lower, ease inflationary pressures and reduce the likelihood of more aggressive interest rate hikes. Investors also anticipate that a divided government could constrain President Donald Trump’s fiscal agenda, limiting additional government spending and borrowing while further easing inflation concerns. Meanwhile, the global equity selloff intensified amid fears that Democrats could impose stricter regulations on the artificial intelligence industry and curb data center expansion, prompting some liquidity-driven selling in precious metals. However, these pressures were offset by stronger demand for safe-haven bonds, which pushed yields lower and supported demand for non-yielding assets such as gold.

Gold rose more than 1% to above $4,120 an ounce on Thursday, extending its post-election rally to the highest level since October 21. The advance was supported by a weaker US dollar, which remained near a one-month low, while oil prices stayed below $100 a barrel, easing inflation concerns. Bullion surged more than 3% on Wednesday, its sharpest daily gain since August 19, benefiting from falling energy prices, lower Treasury yields and easing concerns over inflation and interest rates. The unexpected Democratic takeover of both the House and Senate also weighed on the dollar and yields, as it reduces the likelihood of further deficit-expanding legislation under the Trump administration and may limit the risk of further escalation in the Iran war. Meanwhile, traders are pricing in an approximately 80% probability of a Fed rate hike in December, according to the CME FedWatch Tool. Investors are now turning their attention to Friday's US nonfarm payrolls report.

Gold climbed toward $4,150 an ounce on Thursday, extending the previous session's gains to reach two-week highs as Democratic victories in the US midterm elections strengthened hopes for an end to the US-Iran conflict, triggering a sharp decline in oil prices. The precious metal also found support from a weaker US dollar and declining Treasury yields, which enhanced its appeal to investors. President Donald Trump conceded that Republicans lost because of the war and acknowledged gasoline prices as a factor behind the defeat, while indicating that there were no immediate plans to ramp up attacks on Iran. Lower oil prices could ease inflationary pressures, reducing concerns over potential near-term interest rate increases. Investors are now turning their attention to Friday's key US employment report, which could influence expectations for the Federal Reserve's monetary policy. Traders currently see a 79% probability of a Fed rate hike in December, according to the CME FedWatch Tool.