Gold reclaims $4,000 as US midterm sweep sinks USD, Oil plunges

Gold prices surged to near $4,000 on Wednesday as the US midterm elections resulted in a favorable outcome for Democrats, causing the US Dollar to weaken. The XAU/USD reached $4,047 after dropping to a low of $3,919. Wall Street shares were trading in positive territory. Concerns about potential AI regulation, including a possible ban on data centers, may negatively impact the economy.

The preliminary Q3 US GDP reading surpassed the 3% threshold. The US Dollar's depreciation increased demand for gold, which had hit a year-to-date low of $3,870 on October 30. Analysts suggested that a Democratic-controlled Congress might hinder some of the administration's proposals, potentially slowing economic growth. The ISM Services PMI for October came in weaker than expected at 54.5, below the 54.8 forecast.

US job growth remained steady, with private employers adding 86,000 workers. Oil prices fell after the election due to increased chances of the US Congress limiting President Trump's war powers. The Federal Reserve's interest rate hike expectations for December stood at 79% at a 25-basis-point rate. US 10-year Treasury yields dropped by 6 basis points, yielding 4.904%.

Traders were watching jobless claims and Fed officials' speeches on Thursday, as the highlight was the release of Nonfarm Payrolls data on Friday. Gold's trend was expected to continue downward, but buyers were gaining strength as the price approached a crucial resistance trendline. The RSI was nearing a bullish turn after a sharp jump toward its neutral level.

If XAU/USD climbed above $4,100, it would clear the way to challenge the 100-day and 50-day Simple Moving Averages at $4,204 and $4,215. The next target would be the 200-day SMA at $4,474. A drop below $4,000 would expose the November 3 high-turned-support at $3,971, followed by the October 30 year-to-date low of $3,879, and finally the April 22, 2025 daily high-turned-support at $3,500.

Gold has been a store of value and medium of exchange throughout history and is now seen as a safe-haven asset during turbulent times. Central banks are the largest holders of gold, diversifying their reserves to support currencies. Gold's inverse correlation with the US Dollar and US Treasuries means it typically rises when these assets depreciate.

Geopolitical instability or fears of a deep recession can cause gold prices to surge due to its safe-haven status.