- Gold holds steady on Tuesday after hitting a new five-day low earlier in the session, as uncertainty surrounds the U.S. presidential election.
- The election outcome could have a polarizing effect on the U.S. Dollar, influencing Gold's performance, and may even create a “win-win” scenario for the precious metal.
- Technically, indicators suggest XAU/USD may be entering a short-term downtrend.
Gold (XAU/USD) continues its pullback from record highs, finding support at $2,724 early on Tuesday before rebounding to the $2,740s. A slightly weaker U.S. Dollar (USD), driven by uncertainty around the U.S. presidential election outcome, is aiding Gold’s recovery, as the precious metal is primarily priced and traded in USD.
As markets anticipate a polarized impact on the U.S. Dollar based on the election results, a victory for Republican candidate Donald Trump could be USD-bullish, while a win for Democratic candidate Kamala Harris may weigh on the currency.
Simmering geopolitical tensions in the Middle East also provide support for Gold, following Iranian supreme leader Ayatollah Ali Khamenei's warning of a “crushing response” to a recent Israeli attack. Additionally, strong long-positioning from trend-following hedge funds continues to bolster the precious metal’s elevated levels.
Gold rises on safe-haven demand as U.S. election result looms
The growing uncertainty around the election outcome is pushing investors towards Gold as a safe-haven asset. “Regardless of who wins, substantial political shifts can destabilize financial markets, often spurring volatility and driving Gold prices higher,” comments Matthew Jones, a precious metals analyst at Solomon Global.
According to the highly-rated election forecaster 538.com, Vice President Harris holds a slight edge with a 50% probability of victory, while former President Donald Trump has a 49% chance. A mere 1% chance remains for no clear winner. The recent boost in Harris’s polling may also be contributing to Gold’s turnaround on Tuesday.
Jones is bullish on Gold, viewing the election as a potential “win-win” for the metal. He suggests that if Trump wins, anticipated “inflationary pressures and heightened geopolitical tensions” could elevate Gold’s appeal as a safe-haven asset. Conversely, a Harris administration might introduce “significant government spending on social initiatives, infrastructure, and climate projects,” which could weaken the U.S. Dollar and raise inflation concerns, prompting investors to seek refuge in Gold.
Technical Analysis: Short-term trend showing signs of reversal
Gold may be signaling a shift from its short-term uptrend, gradually losing momentum.
XAU/USD 4-hour Chart
On the XAU/USD 4-hour chart, a series of lower highs and lows suggests a potential short-term downtrend. Breaking below Tuesday’s low of $2,724 could confirm this downtrend, possibly leading to a test of support near $2,709.
The Relative Strength Index (RSI) is also displaying bearish divergence, with current price levels higher than October 23’s yet RSI readings lower, indicating rising selling pressure.
Alternatively, given the medium- and long-term bullish trend, a recovery is still plausible. A push above the all-time high of $2,790 could trigger resistance at $2,800, followed by $2,850, a key psychological level.
