Gold extended its rally following the US midterm elections, reaching a more than two-week high on Thursday as the US dollar and Treasury yields continued to fall.
Spot gold rose as much as 1.9% to nearly US$4,147 ($5,900.68) an ounce, its highest level since 20 October.
The gain follows a 3.4% jump on Wednesday, after Democrats swept the US midterm elections, raising expectations that President Donald Trump’s spending plans could face greater opposition in Congress.
Bullion has now risen by about US$250 an ounce since hitting a one-year low last Friday.
Precious metals ‘win’ elections
The prospect of political gridlock pushed the US dollar and Treasury yields to multi-week lows, boosting the appeal of gold and other precious metals.
Silver gained 0.7% to US$52.60 an ounce, following a 5% surge in the previous session. Platinum and palladium also rose 1.3% and 3%, respectively.
Meanwhile, Brent crude oil prices fell sharply amid hopes that the Democrats’ election gains could reduce the risk of further escalation in the US-Iran war.
Saxo Bank Head of Commodity Strategy Ole Hansen tells Reuters: “Precious metals have emerged as major winners following the US elections.”
“The powerful combination of falling energy prices, easing inflation and interest rate concerns, and declining Treasury yields and the dollar has forced recently established speculative shorts to cover,” he adds.
Recovery faces Fed uncertainty
Despite the strong rally, analysts remain cautious about whether gold can sustain its recovery.
Oversea-Chinese Banking (SGX:O39) Strategist Christopher Wong says much of the market’s reaction has been driven by expectations rather than actual policy changes.
“Lower oil prices, if sustained, should also help contain inflation expectations and temper hawkish Fed pricing, reducing a key headwind,” Wong notes.
The strategist adds that he is “cautiously optimistic” gold may be finding a bottom after months of selling pressure.
However, a sustained recovery would likely require further easing in expectations for Federal Reserve interest rate hikes, alongside continued declines in real Treasury yields.
Investors are now awaiting Friday’s US payrolls report for further clues on the economy and the Federal Reserve’s next policy move.
Markets are currently pricing in a more than 80% chance of a December interest rate hike, which remains a potential headwind for gold’s recovery.
Write to Jackson Chen at Mining.com.au
Main Image: iStock
