Gold price rebounded Monday morning, hitting an intraday high of $3,930 as crude oil retreated. The metal rose from last Friday’s low of $3,872. However, the recovery will likely be brief, as traders turn their attention to the upcoming US nonfarm payrolls (NFP) data and the midterm elections.
US midterm elections to impact gold prices
One of the key catalysts for gold prices this week will be the midterm elections , which will determine control of the House of Representatives and the Senate.
Most analysts and polls believe that Democrats will win the House of Representatives and the Senate. If this happens, it means that President Donald Trump will have a challenge executing his legislative agenda.
It also means Trump will face tougher choices in passing budget deals, which could lead to another prolonged government shutdown. It will also complicate the debt ceiling disputes that have persisted across previous administrations.
At the same time, it may help to put Trump in check when it comes to his tariff policy that has led to higher prices in the US.
US-Iran war to be substantial
The other key aspect is on the US-Iran war. If Democrats win by a large margin, Trump may decide to restart his war against Iran to suppress the news. He will also do it to prevent the Democrats from passing a bill to stop the war when they take control of Congress next year.
Gulf countries warn that any attack from the United States will lead to a substantial retaliation from Iran. Iran has warned that it will hit key civilian infrastructure in the region if the US attacks its infrastructure.
The proposed targets include oil and gas terminals, bridges, data centers, desalination plants, and oil and gas fields. Iran has also warned that it will attack major oil refineries, mirroring a strategy that Houthis have used against Saudi Arabia.
Such a move will lead to higher crude oil prices , which are risky for gold because they will make inflation more entrenched. Indeed, gasoline and diesel prices have soared to $4.2 and $5.6, respectively, and this trend may continue.
Higher inflation means that the Federal Reserve will have an incentive to hike interest rates in the December meeting.
Looking ahead, the next important catalyst for gold prices will be the upcoming nonfarm payrolls (NFP) report. Economists expect the report to show that the economy added 68k jobs last month after creating 29k in September. A strong jobs numbers mean that the Fed will likely hike interest rates in December, and vice versa.
Gold price technical analysis
XAU price chart | Source: TradingView
The daily chart shows that gold has been in a strong sell-off in the past few months, moving from a high of $4,695 in August to a low of $3,872 on Friday. It is now attempting to bounce back as investors buy the dip.
Gold is nearing the important resistance level of $3,947, its lowest level in June. Such a move will be a break-and-retest pattern, a common continuation sign. Therefore, gold will likely continue falling, potentially to the key support level of $3,800.
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