US midterm outcome mildly positive for gold, but Fed risks persist: Analyst

Praveen Singh of Mirae Asset Sharekhan said that gold's upside could remain constrained by expectations of further Fed tightening, particularly if US economic data remain firm or oil prices rebound.

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Praveen Singh, head of commodities at Mirae Asset Sharekhan

 

Gold prices surged following the US midterm election results as Democrats gained control of both the House and Senate.

 

The yellow metal staged a sharp rebound from a one-year low of $3,870, reached on October 30. The US midterm election outcome provided fresh impetus to the recovery as Democrats wrested control of Congress from Republicans.

 

Gold rose to $4,147 on November 5, its highest level since October 20, before paring some gains as oil recovered. At the time of writing on the night of November 5, gold was trading around $4,126, up 1.5% for the day.

 

 

Oil and geopolitics

 

The US President's acknowledgement that the Iran war contributed to Republican losses in the midterm elections, along with VP Vance's comments linking the defeat to the Iran war and Israel ties, fuelled expectations that the US could be under greater pressure to reach a deal with Iran. Brent futures slumped to $93.22, their lowest level in more than four months, on November 5. Futures were down around 18 per cent on the week before partially recovering. At the time of writing, Brent was trading near $96, up almost 2 per cent for the day.

 

Russia has advised its citizens to avoid travelling to Iran. 

 

Bloomberg estimates that total Middle East Gulf exports of crude and products, calculated on a seven-day average, stood at 17.8 million bpd on October 29, down slightly from 18.3 million bpd on October 22 and well below the 2025 average of 25.4 million bpd. Crude oil exports fell to 13.7 million bpd from 15.1 million bpd over the same period. Cumulative crude and product exports from Middle East Gulf countries between the start of the war and October 29 remained 39 per cent lower Y-o-Y, amounting to an estimated loss of around 2.35 billion barrels.

 

Impact of US midterm election results

 

Democrats, now in a stronger position to block parts of Donald Trump's legislative agenda, investigate his administration, constrain funding, and challenge nominees, intend to rein in the administration with a focus on affordability and accountability.

Republicans have called for Donald Trump to change tack, restore credibility, and clean house.

 

The US midterm election results are mildly positive for gold. Democratic control of Congress could increase scrutiny of AI and data-centre investment, potentially tempering the pace of AI-related capital spending. A divided government could also make it more difficult for the Donald Trump administration to secure congressional approval for some spending and foreign-policy initiatives. Increased policy uncertainty and the prospect of congressional gridlock could therefore provide modest support to gold. However, Donald Trump retains broad executive authority over crucial areas such as trade, foreign policy and the federal bureaucracy.

 

Data roundup

 

Initial US jobless claims fell to 189K, a fresh decadal low, while continuing claims edged higher to 1,718K from 1,695K. Weekly labour-market data continue to point to resilience in a "low-hire, low-fire" environment.

October ISM manufacturing rose to a three-month high of 55.5, above the estimate of 54.5, as new orders and employment increased more than expected. Price pressures eased slightly but remained elevated.

 

ISM services slipped to a three-month low of 54.5, slightly below the estimate of 54.8, but remained at a healthy level. Price pressures continued to be elevated.

 

Dollar index and yields

 

The Dollar index fell to 101.09 following the US midterm election results amid expectations that congressional gridlock and a potential slowdown in AI-related investment could weigh on the US growth outlook. The index subsequently recovered as yields firmed on November 5. At the time of writing, it was hovering around 101.44, down 0.05 per cent for the day.

 

As US equities came under heavy pressure on November 5, the two-year Treasury yield fell to 4.52 per cent, its lowest level in almost a month, while the 10-year yield declined to 4.83 per cent, a two-month low.

 

Central Bank Watch

 

As anticipated, the Bank of England raised Bank Rate by 25 bps to 4 per cent, its first hike since 2023. The MPC voted 8-1 for the 25-bp increase, with external member Catherine Mann preferring a larger 50-bp hike to 4.25 per cent. The BoE said inflation is expected to rise to around 5 per cent by mid-2027 before subsequently declining as the effect of elevated energy prices fades and restrictive monetary policy weighs on inflation.

 

Cleveland Fed President Beth Hammack, one of the two FOMC members who voted in favour of a rate hike at the October 28 meeting, reiterated her call for small rate increases to tame inflation in a November 5 speech. She said smaller hikes would be less disruptive to households, financial markets and businesses.

 

Richmond Fed President Tom Barkin said further rate hikes are needed to control inflation, although he remains uncertain about the appropriate pace and magnitude.

 

New York Fed President John Williams will participate in a moderated discussion organised by the ECB in Germany. He is also scheduled to participate in a discussion organised by UC Berkeley in New York on November 13.

Traders will also monitor speeches from several other Fed officials, including Fed Governor Christopher Waller, next week.

 

Fed rate-hike probability

 

Implied overnight rates indicate a 74 per cent probability of a Fed rate hike in December, while the rates curve has shifted lower, suggesting expectations for a less hawkish Fed path further out. Markets currently price around 2.22 Fed rate hikes by October 2027.

 

Central-bank gold buying

 

Central-bank buying continues to provide strong underlying support to gold prices. Central banks purchased an estimated 321 tonnes in Q3, taking YTD demand to 675 tonnes, up 6 per cent Y-o-Y. China, at 63 tonnes, and Poland, at 40 tonnes, were the largest reported buyers during the quarter, although nearly two-thirds of estimated official-sector purchases remained unidentified.

 

Gold ETF and COMEX inventory

 

Total known global gold ETF holdings declined for a fourth consecutive day, taking holdings to 100.80 Moz, their lowest level since September 25.

 Holdings remain 1.85 Moz higher Y-T-D, although they have slipped below their pre-Iran-war level of 100.92 Moz.

Registered COMEX gold inventory at 14.38 Moz stands at its lowest level since May 29, while eligible COMEX inventory at 8.74 Moz is at its highest level since September 21.

 

Upcoming data

 

Major US data releases in the near term include October nonfarm payrolls and November preliminary University of Michigan consumer sentiment and inflation expectations on November 6; October New York Fed inflation expectations on November 9; October CPI on November 10; October existing-home sales on November 12; and October PPI on November 13.

 

In Europe, attention will be on Q3 UK GDP on November 12, followed by Q3 Eurozone GDP and employment on November 13.

 

Key Asian releases include China's October inflation data on November 9 and October trade balance on November 10.

 

Gold price outlook

 

The US midterm election outcome is mildly positive for gold, with lower oil prices, softer yields, increased policy uncertainty and concerns over a potential slowdown in AI-related investment providing support. However, upside could remain constrained by expectations of further Fed tightening, particularly if US economic data remain firm or oil prices rebound.

 

Gold may test resistance around $4,207 in the near term amid subdued yields and a rangebound US dollar. However, it needs to decisively break above $4,226 for the rally to extend meaningfully.

Strong US nonfarm payroll data could limit near-term upside.

 

For short-term trading, traders may buy on dips with a suitable stop-loss to play the range.

 

Support is seen at $4,065/$4,030/$4,000, while interim resistance is at $4,150.