Gold Edges Higher as Dollar Weakens Ahead of US Midterm Results

Gold prices edged higher while the United States (US) dollar weakened on Wednesday, as investors assessed early US midterm election results and awaited Friday’s non-farm payrolls (NFP) report for further clues on the Federal Reserve (Fed)’s monetary policy outlook.

Market Wrap-Up: Dollar Weakens, Gold Recovers, and Oil Slips as Election Results Emerge

Gold prices edged higher on Wednesday, supported by a softer US dollar and declining US Treasury yields, while investors monitored the emerging results of the US midterm elections. Spot gold rose 0.1% to USD 3,931.24 per ounce by 03:06 Greenwich Mean Time (GMT), while US gold futures for December delivery steadied at USD 3,941.40.

The US dollar weakened against most major currencies as early election results pointed towards potential Democratic gains in Congress. Early Democratic Senate victories in South Carolina and North Carolina strengthened expectations of potential gains in Congress, although the final balance of power remained uncertain. The US Dollar Index (DXY) fell 0.2% to 101.7, while the euro gained 0.2% to USD 1.1212 and the US dollar weakened to JPY 158.30.

US Treasury yields also moved lower, with the benchmark 10-year yield falling four basis points to 4.919%. According to Chris Weston, head of research at Pepperstone, the weaker dollar and declines in both nominal and real US Treasury yields were supporting gold prices. Demand for protection against a potentially more unpredictable Trump administration was also providing support for the precious metal.

However, monetary policy expectations remained a consideration for gold. According to the Chicago Mercantile Exchange (CME) Group's FedWatch Tool, traders were pricing in a 78% probability of a Fed rate increase in December. Higher interest rates generally increase the opportunity cost of holding non-yielding bullion, potentially limiting its appeal. Markets will now focus on Friday's NFP report for further indications of the labour market's strength and the Fed's policy direction.

Oil prices edged lower in early trading, with Brent crude futures falling 0.25% to USD 103.34 a barrel and West Texas Intermediate (WTI) crude futures declining 0.55% to USD 95.56 by 01:57 GMT. Prices remained under pressure following losses in the previous session, when Brent fell more than 1% to its lowest level in nearly four weeks.

Oil markets continued to weigh diplomatic efforts to end the conflicts involving Iran and Ukraine against concerns over potential supply disruptions. Qatar stepped up mediation efforts to prevent further escalation in the Middle East, although a senior Iranian official told Reuters that Tehran and Washington remained far from reaching an agreement.

Meanwhile, US crude inventories fell by 5.27 million barrels in the week ended 30 October, according to American Petroleum Institute (API) data, compared with analysts' expectations for an increase of approximately 880,000 barrels. Official figures from the US Energy Information Administration (EIA) were due later on Wednesday.

In equity markets, US stocks closed mixed on Tuesday as technology shares rebounded ahead of the election results. The Standard & Poor's 500 Index (S&P 500) gained 0.36% to 7,568.92, while the Nasdaq Composite advanced 0.83% to 25,372.01. The Dow Jones Industrial Average slipped 0.38% to 51,787.04.

Nvidia and Micron Technology gained 2.3% and 2.6%, respectively, helping lift the technology sector after recent losses. Microsoft and Amazon also advanced by more than 2% each. However, Apple fell 1.9% after warning that rising memory-chip costs could pressure its holiday-quarter gross margin.

Investor attention will remain on the US midterm election results, particularly their potential implications for fiscal policy, taxation, regulation, and government spending. Markets will also monitor developments in the Middle East, Friday's NFP report, and the Bank of England's upcoming policy announcement on Thursday.

DXY

Key Takeaways

·         Early Democratic gains in the midterm elections added pressure to the US dollar amid uncertainty over the potential shift in congressional control.

·         According to Carol Kong, currency strategist at Commonwealth Bank of Australia, a potential Democratic sweep could constrain government spending and place further pressure on the US dollar.

Technical Outlook

·         Daily Bias: Bearish

·         Support: 101.03

·         Resistance: 101.94

Gold / US Dollar (XAU/USD) 

Key Takeaways

·         Falling nominal and real US Treasury yields strengthened gold's appeal, providing additional support to the precious metal.

·         Expectations of heightened political and geopolitical uncertainty sustained demand for portfolio protection.

Technical Outlook

·         Daily Bias: Bullish

·         Support: 3,896

·         Resistance: 3,971

Brent Contract for Difference (CFD)

Key Takeaways

·         Progress towards potential peace negotiations remained a counterweight to concerns over further supply disruptions. 

·         An unexpected draw in US crude inventories offered a supportive supply-side signal, although broader oil market sentiment remained cautious.

Technical Outlook

·         Daily Bias: Bearish

·         Support: 100.17

·         Resistance: 106.39

Calendar Watch 

·         Automatic Data Processing (ADP) Employment Change: Provides an early indication of private-sector labour-market conditions ahead of Friday's NFP report, influencing Fed rate expectations.

·         Balance of Trade: Offers insight into US export and import activity, with potential implications for economic growth and the dollar.

·         Institute for Supply Management (ISM) Services Purchasing Managers' Index (PMI): Signals the health of the services sector and provides clues about economic momentum and inflationary pressures.

·         EIA Crude Oil Stocks Change: Provides insight into US oil supply and demand. An unexpected inventory draw could support oil prices, while a build could weigh on sentiment.

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