Gold steadies on day of US presidential election

• Gold steadies on Tuesday, having reached a new five-day low earlier in the day as the US presidential election remains a question-mark event. 
• The election could be polarizing for the US Dollar, impacting Gold, or even be a “win-win” for the precious metal. 
• Technically, there are signs XAU/USD is entering a short-term downtrend. 

Gold (XAU/USD) continues to backslide from its record high, eventually finding support at $2,724 early on Tuesday and bouncing back to regain the $2,740s. A marginally weaker US Dollar (USD) due to uncertainty over the US presidential election result is aiding Gold in its rebound, since the precious metal is mostly priced and traded in USD. 

This comes as markets increasingly view the final result of the election as polarizing for the US currency, with a victory for Republican nominee Donald Trump USD-bullish but the opposite for Democrat nominee Kamala Harris.

Simmering tensions in the Middle East also keep Gold supported, after Iran's supreme leader, Ayatollah Ali Khamenei, said that the US and Israel "will definitely receive a crushing response," to Israel’s attack last month. Further, overweight long-positioning from trend-following hedge funds is also helping the yellow metal sustain its current highs.

Gold bounces ahead of US presidential election result

Gold recovers from safety flows due to the high level of uncertainty regarding the outcome of the US presidential election, which regardless of the winner alone can be bullish for the yellow metal. 

“Regardless of the outcome, significant political shifts can unsettle financial markets, and such uncertainty typically fuels volatility, and both can serve as catalysts for higher Gold prices,” says Matthew Jones, precious metals analyst at Solomon Global. 

The highly-rated election forecaster 538.com indicates a 50% probability of Vice President Harris winning on Tuesday whilst former President Donald Trump has a 49% chance of victory. That leaves a 1% chance of no overall winner. Over the last 24 hours, Harris has edged into the lead after lagging Trump for several days. This may also explain Gold’s turnaround on Tuesday.

Solomon’s Jones is bullish on Gold overall, seeing the election outcome as a “win-win” for the precious metal regardless of which candidate is victorious. 

A Trump in the White House would lead to “inflationary pressures and geopolitical tensions,” according to the analyst, which could, “amplify Gold’s appeal as a safe-haven asset, driving demand upward.”

On the other hand, if Harris wins, the Democrat nominee “has outlined a vision marked by robust government expenditure on social programs, infrastructure, and climate initiatives,” writes Jones, adding that these policies “may exacerbate budget deficits, potentially weakening the (US) Dollar and stoking inflation fears. Investors could increasingly turn to Gold as a hedge (...) pushing prices higher.”

Technical Analysis: Short-term trend might have reversed

Gold could be showing signs of reversing its short-term uptrend as it continues steadily leaking lower. 

XAU/USD 4-hour Chart

 

Although the precious metal remains in an uptrend on a medium and long-term basis, the establishment of a sequence of falling peaks and troughs on the 4-hour chart could be one of the first signs of a short-term downtrend taking root. Given the technical principle that “the trend is your friend,” this now might tilt the odds in favor of even more downside in the near term. 

A break below the $2,724 day’s lows would add further confirmation to the short-term downtrend thesis and probably see prices fall to the bottom of the recent range at $2,709.

The Relative Strength Index (RSI) is also showing bearish divergence (red dashed lines on chart) when comparing the current price level to that on October 23. The RSI is lower than it was on October 23, whilst price remains higher, and this indicates underlying selling pressure is strong.

Alternatively, given the medium and long-term bullish trends, it is also possible that a recovery could unfold. In such a scenario, a break above the all-time high of $2,790 would probably lead to a move up to resistance at $2,800 (whole number and psychological number), followed by $2,850.