Will gold climb back above $4,000?

Will gold climb back above $4,000?

• The slump in oil prices has provided support for the precious metal.
• Gold continues to track stock market indices.

The US dollar was caught off guard by the sharpest fall in oil prices since April, against a backdrop of rumours of a diplomatic resolution to the conflict in the Middle East. Prior to this, interest in the greenback had been buoyed by fears that the US would resume bombing Iran immediately after the midterm elections. The fall in the USD index might have been more pronounced had it not been for strong data on manufacturing activity. The manufacturing PMI rose to 55.5, the second-highest reading since 2022.

The combination of a weakening US dollar, falling Brent crude prices and Treasury bond yields has created the ideal environment for gold. The precious metal managed to rebound from its annual low and recoup most of the losses incurred during the previous session. It fell 6.8% in October, with more than 3.5% of that lost last Friday alone, from $4,020 to $3,875.

The main reasons cited were high oil prices and a widespread sell-off of technology shares. Gold is highly sensitive to the Fed’s monetary policy, and the rally in Brent crude fuelled fears of accelerating inflation and a faster cycle of monetary tightening. In theory, this should lead to higher debt market rates. At the same time, borrowing costs for hyperscalers were rising, and the market was growing concerned about the effectiveness of artificial intelligence investments.

The precious metal is used as a liquidity tool. It is sold to meet margin requirements on shares. However, as recent events have shown, neither the fall in Treasury bond yields nor the collapse in oil prices is a cure for the panic prevailing in the tech sector. The Nasdaq-100 has entered correction territory, and this factor is holding back the bulls in gold.

Gold’s reaction to the midterms will most likely be linked to the performance of Brent crude and stock indices. A divided Congress may calm markets, but a return of investor interest in artificial intelligence depends on the tech giants’ earnings reports. The future of oil hinges on whether the US and Iran intend to return to the negotiating table. The precious metal could rise above $4,000 per ounce, but for that to happen, the stars would have to align.

The FxPro Analyst Team