Near $3,950: Gold advances as traders prepare for US midterm election

$3,950 is within reach as Gold gains 1.75% on the day in early Asian trading on Tuesday.
Despite a session without a breakthrough, Iran says negotiations to end the war remain under way.
Gold could draw support from safe-haven demand as uncertainty surrounds the US midterm elections.

Gold (XAU/USD) advances to around $3,950. The rebound in early Asian trading on Tuesday follows a decline in oil prices that has eased inflation concerns. Attention will turn to the US midterm elections later this week.

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

Talks to end the eight-month conflict between the US and Iran remain under way, Tehran said on Monday. According to Reuters, several days of negotiations involving Iranian officials and Qatari mediators produced revised proposals without delivering a significant breakthrough.

The proposal submitted by Iran in September to end the war remains central to the talks, according to Iran's Foreign Ministry spokesperson Esmaeil Baghaei. He nevertheless confirmed comments attributed to Foreign Minister Abbas Araqchi on Saturday indicating that the proposal could be shortened.

Peter Grant, vice president and senior metals strategist at Zaner Metals, said: “Weaker oil prices have provided some relief … in terms of reducing inflation concerns. But the market is still expecting a December rate hike from the Fed, although those odds have lessened a little bit over the last couple of trading sessions,”

Inflation and deficit concerns could regain prominence around Tuesday’s US midterm elections, potentially lifting demand for Gold as a safe haven in the near term. Polls favour Democrats taking the House, but the outcome for a Senate majority remains less certain.

Nearly 73% is now the market-implied probability of a US rate increase in December, according to the CME FedWatch Tool. That compares with 80% a week earlier.

Gold support counters oil pressures amid regional risks

A steady currency backdrop offers some protection for bullion, according to HSBC analysts, who say “a stable US Dollar should help temper risks to gold,” adding that it “remains well supported by diversification flows from central bank purchases, as well as geopolitical and fiscal uncertainty.” Oil presents a contrasting picture. The bank cautions that “we expect oil prices to remain volatile as they respond to changes in the news flow,” keeping energy markets a continuing source of uncertainty.

HSBC takes a selective approach to regional equities. It observes that “South Africa benefits from a bullish outlook for gold, but geopolitical uncertainty remains a drag on the region,” and that “elevated oil prices remain headwinds for the region.” For EM Asia, the bank says the region “is resilient given its strategic role in the global AI supply chain, but we have become more selective,” signalling greater discrimination despite those structural advantages.

Supportive fundamentals at the sector level remain subject to geopolitical risks in HSBC's assessment. The bank says “the sector is benefitting from multiple positive trends that are lifting demand and prices,” and notes that “valuations are the lowest among all sectors, with many large companies reporting strong cash flows and relatively high dividends.” It nonetheless cautions that “regional conflicts are likely to continue for the rest of the year, with damaged infrastructure delaying a swift return to normality,” indicating that geopolitical uncertainty will continue to weigh on otherwise favourable fundamentals.

Technical Analysis: 100-day SMA Caps Gold’s Bearish Outlook

Trading below both the 20-period Bollinger Bands simple moving average (SMA) and the 100-day SMA, XAU/USD retains a clearly bearish bias on the daily chart. These averages suggest limited upside as the price consolidates close to recent lows. At 36.88, the Relative Strength Index (14) sits just above oversold territory. This points to weak downward momentum rather than complete exhaustion, with further declines still possible unless Gold recovers above the overhead averages.

Around $4,090, the Bollinger midline provides the first upside hurdle. A recovery gaining momentum would then face a broader supply area defined by the 100-day SMA at $4,210 and the upper Bollinger band near $4,255. The closest support lies at the lower Bollinger band of $3,920. A clear break below that level would open the way to new lows; if it holds, XAU/USD would remain in a bearish range below the cluster of moving-average resistance.

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

Gold: Key Questions Answered

What attracts investors to Gold?

Widely used to preserve wealth and facilitate exchange, Gold has held an important place throughout human history. Beyond its lustre and role in jewellery, the metal is now commonly regarded as a safe haven: an investment considered attractive during periods of turmoil. Because it depends on no particular issuer or government, Gold is also widely viewed as protection against inflation and currency depreciation.

Which buyers hold the most Gold?

The largest holders of Gold are central banks. To underpin their currencies during unsettled periods, they typically diversify reserves by purchasing Gold, reinforcing perceptions of economic and currency strength. Substantial Gold holdings can strengthen confidence in a country's solvency. World Gold Council data show that central banks expanded their reserves by 1,136 tonnes in 2022, worth around $70 billion. No year since records began has seen larger purchases. Emerging-economy central banks, including those of China, India and Turkey, are rapidly building their Gold reserves.

How does Gold move relative to other assets?

Both the US Dollar and US Treasuries are major reserve and safe-haven assets, and Gold tends to move inversely to them. Dollar weakness usually supports Gold, helping investors and central banks diversify their holdings during turbulent periods. Risk assets also generally have an inverse relationship with Gold: stronger equity markets tend to weigh on its price, whereas selling in riskier markets tends to support the metal.

Which factors drive Gold prices?

A broad set of influences can affect Gold prices. Its safe-haven role means geopolitical turmoil or concerns over a severe recession can send prices sharply higher. Gold pays no yield, so lower interest rates tend to support it, while a higher cost of borrowing usually puts pressure on the metal. Nevertheless, the US Dollar (USD) drives most price movements because Gold is quoted in dollars (XAU/USD). Dollar strength typically restrains Gold prices, while a weaker currency is likely to lift them.