Under the Democratic Party's “blue wave,” US dollar and US bond yields weakened together, and gold continued to rise to 4,100 US dollars

The Zhitong Finance App learned that the Democratic Party swept Congress in the US midterm elections, driving down yields on the US dollar and US Treasury bonds. Gold further expanded its gains after rising more than 3% on Wednesday. The price of gold is currently trading above 4,100 US dollars per ounce. On the previous trading day, gold recorded its biggest one-day gain since August, regaining the key support level of 4,000 US dollars per ounce. As of press release, spot gold rose 1.63% to 4126.45 yuan.

On Wednesday, the US Treasury yield curve fell across the board, and the US dollar weakened by 0.4% due to news of the Democratic Party's victory in the US Treasury yield curve. The dollar and US bond yields declined further on Thursday.

The Democratic Party controls both the House of Representatives and the Senate, and the US President is still Republican Trump, which means that the US will enter a state of “split government.” This could bring about several changes: the Trump administration will face greater resistance to push for new fiscal stimulus and large-scale spending plans; Democrats may block or limit parts of the Republican Party's policy agenda; and tariffs, trade, and geopolitical policies may be subject to more congressional checks and balances.

Meanwhile, the market interpreted the Democratic Party's sweep as a political signal that the war in Iran was being downgraded. US Vice President Vance clearly attributed the Republican Party's defeat to the war in the Middle East on social media, further strengthening the narrative of escalation. Together, these factors contributed to the weakening of US dollar and US bond yields. Since gold itself does not generate interest income, weakening US dollar and US bond yields are generally beneficial to gold prices.

Although this rebound in gold is the most obvious breakthrough since its sluggish trend for several months, the price of gold has fallen by more than one-fifth since the outbreak of the US-Iran war in late February. The sharp rise in energy prices caused by the war prompted a tightening of monetary policy.

OCBC Bank analyst Sim Moh Siong and others said in a report: “It is encouraging that gold is once again responding positively to the favorable macroeconomic environment. We are cautiously optimistic that the price of gold may be searching for a bottom. However, the easing of expectations of the Federal Reserve's tightening policy and the revival of investment demand are still the keys to maintaining the rise in gold prices.”

Traders will be watching the US non-farm payrolls report due to be released on Friday to find more clues about economic and interest rate trends. If the data shows that inflation is under control, it will provide more room for the Federal Reserve to implement monetary policy easing.

Looking ahead to the fourth quarter, global demand for gold ETFs, gold bars and coins, derivatives and OTC transactions in the Western market may face multiple macroeconomic forces: rising policy interest rates, higher bond yields, and a stronger dollar may curb demand for gold; while fiscal concerns, inflation risks, geographical conditions, and financial market pressure are expected to support gold demand.

Looking ahead to the gold market before the end of the year, Louise Street, a senior market analyst at the World Gold Council, believes that there is a general balance between positive and negative factors. Although rising interest rates and divergent inflation expectations may put pressure on gold prices, geopolitical risks are intertwined with financial market pressure, which may prompt market participants to turn to gold and seek stability.