Market Analysis

Gold: How the US Mid-term elections will affect the precious metal

It is difficult to be excessively bullish on gold without any new catalyst that could dramatically drive prices higher, however, the US midterm elections can be a significant catalyst if President Trump loses Congressional control which could have major implications on his policy.

The US Mid-term elections may have a negative impact on gold if the Republicans retain both Houses, on the other hand, the opposite scenario where the Democrats take both Houses could send equity markets much lower, boosting gold. Such uncertainty is keeping gold steady at the moment.

The US dollar is weaker in contrast to almost all major peers ahead of Wednesday’s US mid-term election results and potential for change in the House that would see President Trump’s Republicans lose full control of Congress.

Even though the US dollar is one of the world’s most important reserve currencies, when the value of the dollar weakens against other currencies, this often stimulates people to seek the safety of gold, in addition, a weaker US dollar makes gold and other commodities less expensive for overseas buyers, which raises gold prices.

Gold can also be viewed as an important part of a diversified investment portfolio because of its price increases in response to geopolitical uncertainty that causes the stocks and bonds, to decline. Although the price of gold can be volatile in the short term, it has always maintained its value over the long term.

Since the beginning of 2018 until last Tuesday close, the precious metal remains underwater with over a 5.8% loss and since the start of November, the gold is staying afloat with almost 1.0% rise. Nonetheless, the week began on the left foot with a drop of more than 0.5% and on the daily basis closed in the red with almost 0.5% loss. Furthermore, the index is in a recovery phase since mid-October.

On yesterday session, gold initially rose with a narrow range but found enough selling pressure near the 50 Fibonacci retracement at 1,234.64 to trim all of its gains and closed near the low of the day, in addition, the precious metal managed to close shy below Monday’s low, which suggests a strong bearish momentum.

The stochastic is showing a bearish momentum although is still above the 50 midline.

In October, the commodity made the second leg of the double bottom pattern and began a rally that ended near the 50 Fibonacci retracement at 1,234.64 where it found some resistance and lack of bullish momentum to carry on. By late October, gold even made a downward correction to the daily support at 1,211.35 driven by profit-taking.  November began with a bang that stopped again near the 50 Fibonacci retracement at 1,234.64 and now drifting lower with lower volume, signs of a potential correction and not a reversal.


Watch out this week:

On Wednesday, November 07 US Midterm Election Day results, counting starts as soon as the polls close and we should have the results early morning Wednesday. Market analysts expect a divided US Congress, which means that Trump would be unable to drive his domestic policy agenda forward. Therefore, the mid-term elections should have limited implications for markets and the economy, as there will be no changes to economic policy.

On Thursday, November 08 at 19:00 GMT (14:00 PM ET) the US Federal Reserve Bank (FED) is scheduled to announce that the interest rates will remain unchanged at 2.25% as widely expected by market analysts. The FED will also release its statement regarding monetary policy. A hawkish statement may be viewed as positive for the US dollar (USD), whereas a dovish view is considered negative.


Gold Daily Candlestick Chart

Gold Daily Candlestick Chart


Written by Hugo O’Neill, External Analyst


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