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Gold has rebounded strongly this week, climbing back above US$4,000 an ounce. Silver has recovered above US$52.
The recovery began early in the week as diplomacy involving Iran sent oil prices lower, easing fears of energy-driven inflation. The bigger move came on Wednesday after the US midterm elections, in which Democrats won control of both the House and the Senate according to the Associated Press. The US dollar fell to a one-month low and Treasury yields dropped, and gold rose about 3% to around US$4,050, its biggest daily gain since mid-August. Silver jumped more than 4%.
Analysts linked the rally mainly to currency and interest rate moves, along with investor focus on the US fiscal outlook. Capital Economics' Hamad Hussain said concerns about fiscal risks are supporting precious metals, but cautioned that with the Fed likely to stay hawkish, “the scope for further gains in gold prices is limited.”
History offers some encouragement. Kitco Research found that gold has risen by an average of 14% in the 12 months after each of the last 13 US midterm elections, although past performance is no guide to future returns.
Record ETF holdings and continued central bank buying remain supportive, while tech-sector volatility and the prospect of a December Fed hike remain the main risks.
The week ahead: Friday's US jobs report, and whether gold can hold above US$4,000.
Sources: Kitco / Reuters · Yahoo Finance / Reuters · Kitco AM Report · USAGOLD · Coinpaper