Stronger US Dollar pushes Gold below $3,950 as attention turns to US midterm elections

Gold remains under pressure near $3,930 as early Asian trading gets under way on Wednesday.
Gains in the US Dollar and rising yields put gold prices under pressure.
Q3 gold purchases by central banks were the fastest since the end of 2024, according to the World Gold Council.

Selling pressure keeps Gold (XAU/USD) near $3,930 in Wednesday’s early Asian trade, as a stronger US dollar (USD) and rising Treasury yields weigh on the metal. For indications of the fiscal policy outlook, traders are awaiting the results of the US midterm elections.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

Uncertainty surrounding a potential US-Iran deal and the midterm election results has markets assessing the outlook, with the US Dollar inching up alongside Treasury yields. Together, these moves weigh on the dollar-denominated commodity. Attention will remain firmly on the US election results: polls and nonpartisan analysts favour Democrats taking control of the House from Republicans, although the battle for the Senate remains uncertain.

Commenting on the implications for gold, Fawad Razaqzada, market analyst at forex.com, said: “A Democratic clean sweep could potentially put pressure on the US dollar by making it harder for the administration to pass law, including measures related to the debt ceiling. If the dollar falls, that’s one way gold could potentially find some support,”

Despite pressure on gold from higher oil prices and interest rates, central banks stepped up purchases in the third quarter (Q3) to their fastest pace since the end of 2024, according to the World Gold Council’s report published on Tuesday. Net purchases by these institutions totalled 321 tons over the three months through September. The World Gold Council nevertheless lowered its forecast for this year’s growth in gold investment, from the previously estimated 400 tons to 200 metric tons.

Is gold’s decline excessive despite expectations of higher US rates?

A sharp decline in gold has drawn attention from Commerzbank analysts, who note that the price "fell by 3.7% on Friday to USD 3,870 per troy ounce, its lowest level in more than a year," resulting in "a substantial monthly loss of almost 7% in October, which was even slightly larger than that recorded in September." Changing monetary policy expectations account for much of the recent pressure in their assessment: "given the robust US economy and inflation running well above target, a further rate hike in December is highly likely." Explaining the link with gold demand, Commerzbank states that "expectations of rate hikes have led to rising bond yields and (real) interest rates, which in turn increase the opportunity cost of holding gold and, conversely, reduce the attractiveness of holding gold."

There are limits to that explanation, however. In the bank’s view, interest rate developments "can only explain the current fall in the price of gold to a limited extent," since "following last week’s Fed meeting – at which, as expected, the Fed left interest rates unchanged – interest rate expectations have eased and both nominal and real bond yields have subsequently fallen." Commerzbank’s conclusion against this backdrop is that "we consider the price decline in gold to be excessive and unwarranted. The arguments in favour of a rising gold price remain valid."

Technical Analysis: Can Gold shake off its bearish bias below the 100-day SMA?

A bearish near-term bias persists on the daily XAU/USD chart as the retreat continues below important trend and volatility indicators. With spot gold trading beneath both the 100-day simple moving average (SMA) and the middle line of the Bollinger Bands, rebounds appear constrained within a wider corrective phase. At 36.09, the Relative Strength Index (RSI) sits just above oversold territory. This points to continued downside pressure, alongside the possibility of occasional corrective rebounds rather than a clearly established exhaustion low.

The Bollinger middle band near $4,080 provides the first upside resistance, ahead of the 100-day SMA at $4,205 and, further away, the upper Bollinger band around $4,255. Immediate downside support lies at the lower Bollinger band at $3,900. A convincing breach of this floor would open the way for further declines; if it holds, gold could consolidate within the existing band structure before attempting to test the cluster of resistance levels above.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

Gold: Common Questions

What makes Gold an investment choice?

As a widely used store of value and medium of exchange, Gold has occupied an important place throughout human history. Beyond its lustre and use in jewellery, the precious metal is now widely regarded as a safe-haven asset, or an investment considered suitable during periods of turbulence. Its independence from any particular issuer or government also underpins its widespread role as a hedge against inflation and currency depreciation.

Which buyers hold the largest Gold reserves?

The largest holders of Gold are central banks. To support their currencies during turbulent periods, they typically diversify reserves and purchase Gold, bolstering perceptions of strength in both the economy and the currency. Substantial Gold reserves can reinforce confidence in a country’s solvency. World Gold Council data show that central banks increased their reserves by 1,136 tonnes of Gold, valued at around $70 billion, in 2022. No other year has recorded higher purchases since records began. Among emerging economies, China, India and Turkey are rapidly building up their central bank Gold reserves.

How does Gold move relative to other assets?

Both the US Dollar and US Treasuries, major reserve and safe-haven assets, have an inverse relationship with Gold. A weakening Dollar generally supports Gold, allowing investors and central banks to diversify their holdings during unsettled periods. The metal also tends to move in the opposite direction to risk assets: equity market gains typically put pressure on Gold prices, whereas sell-offs in riskier markets generally support the precious metal.

Which factors influence Gold prices?

A variety of forces can drive Gold prices. Its safe-haven appeal means geopolitical unrest or concerns about a deep recession can trigger a rapid rise. Since Gold offers no yield, lower interest rates generally support it, while higher borrowing costs tend to weigh on the metal. Even so, the behaviour of the US Dollar (USD) drives most price movements because Gold is quoted in dollars (XAU/USD). Dollar strength usually restrains Gold prices; a weaker Dollar, by contrast, is likely to lift them.