Gold edges are rising as uncertainty over the US presidential election increases

The gold price rises during the Asian session on Monday.
Demand for safe havens amid US presidential election uncertainties and ongoing tensions in the Middle East could push gold prices higher.
Traders are bracing for the US election results on Tuesday, ahead of the Fed’s interest rate decision.

The Gold price (XAU/USD) is trading in positive territory on Monday. Risks from the US presidential election and ongoing geopolitical tensions in the Middle East are likely to underpin the yellow metal, a traditional safe haven, in the near term. Nevertheless, renewed demand for greenbacks and higher US bond yields could limit the upward trend for gold prices, as higher yields make non-yielding assets like bullion less attractive by comparison.

Investors will be keeping a close eye on the looming US presidential election on Tuesday. Attention will shift to the US Federal Reserve (Fed) interest rate decision on Thursday. Uncertainty about the outcome of the US election is one reason why markets expect the Fed to cut its usual 25 basis points (bps) in interest rates on Thursday, rather than repeating its excessive half-point easing.

Daily Digest Market Movers: Gold prices remain strong ahead of the US presidential elections

“ETFs should see further inflows due to expected interest rate cuts, high budget deficits and highly valued equity markets. However, investment demand in the fourth quarter could be strongly influenced by the outcome of the US elections. The central bank’s gold purchases are likely to be strong again this year, but not at the levels of the past two years. Jewelery demand is also expected to be lower than in the previous year, albeit slightly higher than previously expected by the WGC,” Commerzbank analysts said.
PredictIt posted a 51% chance of a Harris win on Tuesday, marking the vice president’s first lead over Trump (who has Harris with a 49% chance) on the site since October 9.
The US NFP rose 12K in October, the smallest gain since December 2020. This figure followed the 223K increase (revised from September’s 254K) and was well below the market consensus of 113K.
The unemployment rate remained unchanged at 4.1% in October, which was in line with expectations.
Financial markets fully priced in the US Federal Reserve’s (Fed) interest rate cut of 25 basis points during Thursday’s November meeting.

Technical analysis: The gold price maintains the bullish atmosphere in the longer term

The gold price rises on the day. The bullish view of the precious metal prevails as the price remains above the key 100-day Exponential Moving Average (EMA) on the daily chart. Furthermore, the 14-day Relative Strength Index (RSI) is above the 50 center line near 60.20, indicating that the support level is likely to hold rather than break.

More green candlesticks above the all-time high and psychological level in the $2,790-$2,800 zone could lift XAU/USD towards $2,850.

On the other hand, consistent trades below $2,715, the October 24 low, could drag the yellow metal to $2,624, the September 30 low, followed by the $2,600 round.

Frequently Asked Questions about the Fed

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: achieving price stability and promoting full employment. The most important tool to achieve these goals is adjusting interest rates. When prices rise too quickly and inflation exceeds the Fed’s 2% target, interest rates are raised, raising borrowing costs throughout the economy. This results in a stronger US dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the unemployment rate is too high, the Fed can cut rates to encourage borrowing, which weighs on the greenback.

The Federal Reserve (Fed) holds eight policy meetings per year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven presidents of the regional Reserve Bank, who serve on a rotational basis for one term of office. years to fulfill. .

In extreme situations, the Federal Reserve may resort to a policy called Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stalled financial system. It is a special policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more dollars and using them to buy high-quality bonds from financial institutions. QE generally weakens the US dollar.

Quantitative tightening (QT) is the reverse process of QE, in which the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal of bonds it holds that are maturing to purchase new bonds. It is generally positive for the value of the US dollar.