Gold and stocks rally after US midterms, greenback dips: Key takeaways for Singapore investors

SINGAPORE - Gold prices rose and Wall Street stocks rallied on Nov 4, but the US dollar dipped after the Democratic Party swept both chambers of Congress in the United States midterm elections, as investors assessed what a political gridlock in the US could mean for the global economy.

A Democratic-controlled Congress could restrict US President Donald Trump’s plans for further fiscal stimulus, potentially slowing economic growth and reducing the need for additional interest rate hikes by the US Federal Reserve, experts said.

Some told The Straits Times that the market’s reaction reflects expectations of slower US fiscal spending, easing inflationary pressures and reduced political uncertainty.

Still, the outlook for gold, currencies and equities will continue to depend on the Federal Reserve’s interest rate decisions and broader economic developments, they said.

What happened: Spot gold climbed more than 2% to US$4,138 an ounce after the midterm results were announced. Gold had fallen below the US$4,000-an-ounce mark in recent sessions amid expectations of further US interest rate hikes.

What it means: Zavier Wong, market analyst at etoro, noted that despite the recovery, gold is still down more than 4% this year.

But expectations of another Federal Reserve rate hike in December could limit further gains in gold, with the upcoming US jobs report on Nov 6 likely to also influence its outlook.

“A soft number would take some of the December hike out of the market, which helps gold, while a strong one firms up yields and the greenback, which weighs on it,” said Wong.

Oriano Lizza, sales trader at CMC Markets Singapore, said real yields and investment flows would have a greater influence on gold prices than the outcome of the midterm elections.

“Fed hikes slow the rally but don’t end it, and central banks are still buying gold at several times their pre-2022 pace,” said Lizza.

“Gold is expected back at US$4,500 in the coming months and above US$5,000 by end-2027, even if the US dollar firms up,” he added.

What happened: The US dollar fell to a one-month low. The dollar index, which measures the greenback against a basket of six currencies, fell 0.24 per cent to 101.24.