【TMGM Financial Recap】Over 3%: Gold Records Its Strongest Daily Gain in Three Months as Democrats Sweep Congress, Triggering a Dollar Plunge!

Spot gold gained 3.3% on Wednesday. The global gold market rebounded strongly, recording its biggest daily advance since mid-August and rapidly reclaiming ground lost in a brief slide below $4,000.

Control of both the House of Representatives and the Senate went to the Democrats in an overwhelming midterm election victory, with historic advances in some traditional Republican strongholds. The result sent the dollar to a low not seen for more than a month. Dollar-denominated gold consequently became more attractive to overseas buyers. Investors broadly view Democratic control of Congress as a potential source of US legislative gridlock. The resulting drag on economic growth could increase the likelihood of future monetary easing by the Federal Reserve. A December Fed rate hike still carries roughly an 83% probability in investors’ assessments, but views on the medium- to long-term policy trajectory are starting to shift.

Concerns that the election results might be disputed subsided after the outcome, delivering a clear short-term improvement in risk appetite. Wednesday’s trading saw the S&P 500 rise around 2%, against a backdrop of sharp fluctuations in crude oil prices. Such an increase in risk appetite usually weakens the dollar, offering indirect support to gold.

Oil moved sharply in the opposite direction to gold. Wednesday’s losses in crude oil futures extended to as much as 8.7%. With the Democrats taking Congress, markets were quick to price in the possibility that a division of power in Washington could accelerate an end to the US and Israeli war against Iran.

The Iran issue had contributed to the Republicans’ heavy midterm election defeat, Trump acknowledged, while saying that the United States currently had no plans to strike Iran. Vice President Vance publicly went further: he questioned the war’s value and blamed it entirely for the election loss. Sources close to Gulf governments indicated that Trump’s weakened position gives him a stronger incentive to negotiate a deal, as a Democratic Congress could restrict his military options. Prospects for a full-scale offensive appeared to recede. Expectations of a de-escalation in the war, coupled with the possibility of increased Middle Eastern crude exports, pulled oil prices lower.

86,000 Jobs: Gold’s Interest Rate Headwind

An October gain of 86,000 in US private-sector employment surpassed the market forecast of 69,000, Wednesday’s ADP National Employment Report showed. Friday’s nonfarm payrolls report is now under close scrutiny for indications of where interest rates may head. Markets still price in a high probability of a December rate hike, following the Fed’s decision to leave rates unchanged at its October meeting. For gold, which offers no yield, higher interest rates raise the opportunity cost of holding the metal. This remains a substantial obstacle in the near term.