【TMGM Financial Recap】Why Did Democrats’ Sweep of Congress Send the Dollar Tumbling and Gold Surging Over 3% in Its Biggest Daily Gain in Three Months?

A sharp recovery swept through global gold markets on Wednesday, with spot prices jumping 3.3%. The move marked gold’s biggest one-day advance since mid-August and swiftly reversed losses after a brief dip below $4,000.

An emphatic midterm election victory gave Democrats control of both the House of Representatives and the Senate, alongside historic gains in some traditional Republican strongholds. The dollar subsequently slipped to its weakest level in more than a month. Since gold is denominated in dollars, the currency’s decline directly made the metal more attractive to overseas buyers. The prevailing market view is that Democratic control of Congress could result in US legislative gridlock. With such a deadlock potentially weighing on economic growth, markets see a greater likelihood of the Federal Reserve moving towards a more accommodative monetary policy in the future. Investors continue to assign roughly an 83% probability to a Fed rate hike in December, but expectations for the medium- to long-term policy trajectory have started to change.

Risk appetite received a clear near-term lift as the election verdict allayed fears of potentially contested results. Wednesday saw the S&P 500 advance around 2%, even as crude oil prices swung sharply. Stronger risk appetite generally puts pressure on the dollar, providing indirect support to gold.

Oil suffered a steep correction even as gold rallied strongly. Crude oil futures tumbled as much as 8.7% on Wednesday. Following the Democratic takeover of Congress, markets swiftly priced in the possibility that divided power in Washington could bring an earlier end to the US and Israeli war against Iran.

While stating that the United States currently had no plans to strike Iran, Trump acknowledged that the Iran issue had contributed to the Republicans’ heavy defeat in the midterm elections. Vice President Vance went further, publicly questioning the war’s value and attributing the electoral setback entirely to it. According to sources close to Gulf governments, a weakened Trump has more reason to pursue a deal as he faces a Democratic Congress with the ability to constrain his military options. A full-scale offensive appeared less likely. At the same time, the prospect of higher Middle Eastern crude exports, together with expectations that the war would de-escalate, drove oil prices down.

What Could Shape the Market Outlook?

Interest rate expectations remain a significant near-term hurdle for gold, as higher rates raise the opportunity cost of holding the non-yielding metal. Wednesday’s ADP National Employment Report put the October increase in US private-sector employment at 86,000, above market expectations of 69,000. Attention now turns to Friday’s nonfarm payrolls report, which investors are monitoring closely for further indications of the interest rate outlook. Although the Fed kept rates on hold at its October meeting, markets still assign a high probability to a December rate hike.