Gold jumps to its highest level in two weeks supported by the US election results

Gold prices rose by about 2 percent, on Thursday, to record their highest levels in two weeks, supported by a decline in the dollar and US Treasury bond yields, in the wake of the significant gains achieved by the Democrats in the midterm elections for the US Congress.

Gold rose in instant transactions 1.9 percent to $4,134.83 per ounce, by 03:16 GMT, recording its highest level since October 22. The precious metal jumped by about 3.4 percent on Wednesday, achieving its largest daily gain since August 19.

US gold futures for December delivery also rose 1.8 percent to $4,144.20 per ounce.

Lin Tran, a market analyst at XS.com, said that the weakness of the dollar and the decline in US Treasury bond yields contributed to gold’s recovery and its exceeding the level of $4,000 per ounce, noting that maintaining trading above this level remains an essential factor for the continued recovery.

She added that continued support for investment flows and revenue movements may help gold stabilize above $4,000, and open the way for it to recover towards $4,200, then $4,400 per ounce.

The dollar fell slightly on Thursday, following the broad victory of the Democrats in the US midterm elections, which removed a major source of uncertainty and promoted a rise in global stock markets.

The decline in the dollar makes gold denominated in the US currency less expensive for holders of other currencies, which enhances demand for it.

In the bond market, the yield on 10-year US Treasury bonds fell by 6 basis points overnight, and by an additional basis point in early trading in Tokyo, to reach 4.87 percent.

Function and benefit statements

Markets are awaiting the US non-farm payrolls report, scheduled for release on Friday, for additional indications on the path of the Federal Reserve's monetary policy.

The CME Group's Fed Watch tool shows that traders are currently pricing in an 82 percent probability of a US interest rate hike next December.

High interest rates usually increase the opportunity cost of holding gold, which does not generate a return, reducing its investment attractiveness.

In price forecasts, Citi Bank set a target for gold at $4,500 per ounce within a period ranging between zero and three months, according to what was reported on Wednesday, indicating that there are great opportunities for further rise if the Strait of Hormuz is reopened and the intensity of the conflict between Yemen and Saudi Arabia decreases before the end of the year, which is the scenario that the bank expects.

As for other precious metals, silver rose in spot transactions 1.7 percent to $53.12 per ounce, platinum rose 2.1 percent to $1,527.65, while palladium increased 2.6 percent to $1,030.14 per ounce.

Oil prices fell for the fourth day in a row, on Thursday, amid expectations that the losses incurred by the Republican Party, to which US President Donald Trump belongs, in this week’s congressional elections will limit the possibilities of escalation of the US-Israeli war on Iran.

Brent crude futures fell 80 cents, or 0.85 percent, to $93.82 per barrel, by 04:26 GMT, while US West Texas Intermediate crude futures fell $1.20, or 1.36 percent, to $86.92.

The two benchmarks fell by more than 8 percent during the previous session, recording their lowest levels since August 31.

Two sources familiar with Gulf government circles said on Wednesday that Trump, whose position has become weaker in the face of a Congress that may be controlled by Democrats and be able to restrict his military options, now has a greater incentive to reach an agreement, adding that launching a large-scale attack on Iran has become less likely.

A settlement to the dispute would allow the restoration of oil flows from regions of the Middle East affected by the war, although analysts warn that the path of developments remains unclear.

“Markets are evaluating the impact of the midterm elections on the next steps that Donald Trump might take regarding the war with Iran, and pricing in greater possibilities for the war to end,” said June Go, senior oil analyst at Sparta Commodities.

She added that the markets will witness more volatility, in light of the continued uncertainty about the path towards reaching a diplomatic settlement that ends the war, in addition to the sharp decline in global strategic reserves.

In a development on the supply front, oil shipments through the Strait of Hormuz, the main waterway for most Gulf oil supplies, have returned to levels approaching those recorded before the war, according to analysts, albeit at higher costs.

The JPMorgan group said in a note on Wednesday that the resumption of supply flows from the Gulf returned the global oil market to record surplus, after months of turmoil resulting from the war.

The group estimated that the market returned to a surplus of 1.1 million barrels per day in September, which expanded to 1.4 million barrels per day in October, approaching the average surplus recorded last year of 1.3 million barrels per day.

Blurring of the political path

However, uncertainty remains before the Democratic-majority Congress takes office next January.

The Citigroup said in a note on Thursday that there are concerns that the White House, after the end of the midterm elections, will focus on using its executive powers in foreign policy, which could open the way for a new escalation in the confrontation with Iran.

For its part, the Eurasia Group reduced its estimates of the possibility of resuming US strikes on Iran to 60 percent, from 65 percent, but it also reduced the probability of reaching an agreement to 10 percent, from 20 percent, in light of Iran’s adherence to its demands, and ruling out Trump’s acceptance of conditions that might be interpreted as a defeat.

On the other hand, the group raised its estimate of the possibility of the confrontation continuing without a resolution to 30 percent, compared to 15 percent previously.

Eurasia said that any escalation, despite the recent decline in oil prices, could push Brent crude to rise more sharply, to range between $110 and $125 per barrel.

In turn, Mukesh Sahdev, CEO of X Analysts, a consulting firm in the energy sector, said that commercial oil reserves in major consuming economies are approaching their lowest levels in 15 years, warning that the results of the US elections may further harden the Iranian position.

In the United States, inventories of crude oil, gasoline, and distillates declined over the past week, coinciding with a rise in demand to its highest levels in a year, according to US Energy Information Administration data issued on Wednesday.

The US Energy Information Administration reported on Wednesday that inventories of crude oil, gasoline, and distillates in the United States declined last week, contrary to expectations.

The administration explained, in its widely followed weekly report, that crude inventories fell by 865 thousand barrels, reaching 409.8 million barrels in the week ending October 30, compared to analysts’ expectations in a Reuters poll of an increase of 877 thousand barrels.

The Administration also indicated that crude stocks at the delivery center in Cushing, Oklahoma, rose by 280,000 barrels during the same week.

Oil prices witnessed a noticeable decline following the issuance of the report. Global “Brent crude” (spot prices) is trading at $98.78 per barrel, a decrease of 4.6 percent, at 04:05 GMT, and American “West Texas Intermediate crude” also decreased by 4.5 percent to reach $91.85 per barrel.

The Energy Information Administration stated that the quantities of crude processed in refineries rose by 199,000 barrels per day during the week, while refinery operating rates rose by 1.7 percentage points to reach 94.5 percent.

Regarding gasoline, US stocks decreased by 222 thousand barrels, reaching 209 million barrels, contradicting expectations that indicated an increase of 153 thousand barrels.

Administration data also showed a decline in distillate stocks - which include diesel and heating oil - by 3.6 million barrels, to reach 99.3 million barrels, compared to expectations of a decline of 100 thousand barrels.

The Energy Information Administration also indicated that net US imports of crude oil increased by 1.18 million barrels per day.