Gold prices climbed on Monday, reaching an intraday peak of $3,930, driven by a retreat in crude oil values. The precious metal had recovered from last Friday’s low of $3,872, but analysts suggest the rally may be temporary as markets await key US economic and political developments.
Focus on US midterm elections
This week’s main event for gold investors is the US midterm elections, which will decide who controls the House of Representatives and the Senate. These elections have historically moved financial markets by influencing fiscal and trade policies.
Most opinion polls and analysts anticipate a Democratic victory securing both chambers of Congress. If realized, President Donald Trump could face difficulties advancing his legislative agenda, given the increased likelihood of policy blockades in Congress.
Potential gridlock in Washington could complicate negotiations over government budgets, raising the risk of a prolonged shutdown. Debt ceiling talks could become more contentious, building on issues faced by previous administrations.
Another area under scrutiny is the administration’s trade and tariff strategy. Tighter Congressional oversight could provide a counterbalance to policies that have contributed to higher prices within the US economy.
Should Democrats gain control of both chambers, the president will likely face greater hurdles in enacting his policy proposals, including budget and trade initiatives.
Rising geopolitical tensions with Iran
Market watchers are also monitoring the ongoing tension between the US and Iran. Some commentators believe that if Democrats win decisively, President Trump could intensify his stance against Iran to shift public attention from domestic political outcomes. If Democrats subsequently pass legislation to restrict military actions, future escalations could become more difficult.
Officials from Gulf countries have warned that any US assault could prompt significant retaliation from Iran. Iranian authorities signaled they would target oil and gas infrastructure, data centers, bridges, and desalination plants in response. Potential attacks on major oil refineries echo tactics previously used by the Houthis against Saudi energy facilities.
Escalation in the region could trigger a surge in crude oil prices, potentially exacerbating inflation. Gasoline and diesel prices have already climbed to $4.2 and $5.6 per gallon, respectively, and may rise further.
Persistent inflation would increase the likelihood of the Federal Reserve adopting a more restrictive stance, potentially raising interest rates at its December meeting.
Mini dictionary: Nonfarm payrolls (NFP) – A key monthly US economic report that tracks the number of new jobs added, excluding farm workers, private household employees, and nonprofit organization employees. The report is widely followed for clues about the health of the labor market and the potential direction of monetary policy.
The upcoming nonfarm payrolls report is expected to provide the next critical signal for gold prices. Economists project that the economy created 68,000 jobs last month, following 29,000 jobs added in September. A strong employment report could reinforce expectations that the Fed will hike rates again, while weaker data may offer some support for gold.
| Event | Potential Gold Price Impact | Potential Oil Price Impact |
|---|---|---|
| Democratic win in Congress | Uncertainty, possible volatility | Neutral to bearish |
| US-Iran escalation | Supportive for safe-haven demand | Bullish |
| Strong NFP data | Downward pressure (rate hike risk) | Neutral to bearish |
| Weak NFP data | Supportive (less rate hike risk) | Neutral |
Technical outlook for gold
Gold’s daily chart shows the metal has endured a sharp decline in recent months, dropping from an August high of $4,695 to last week’s low of $3,872. The current rebound is seen as investors take advantage of lower prices, but technical analysts highlight key resistance and support levels ahead.
The price is approaching resistance near $3,947, marked as the lowest point in June. A move above this level would qualify as a break-and-retest pattern, often observed as a continuation signal. However, if gold fails to hold its gains, prices could decline toward the next major support at $3,800.
After volatility driven by external factors, gold may retest levels last seen in June if the recovery falters, signaling the importance of upcoming economic and political events for future price moves.
