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Nov. 7, 2018 / 11:54 AM GMT/ Source: Reuters
Gold rose on Wednesday as midterm elections delivered a split Congress and pressured the dollar, with investors now turning their attention to a Federal Reserve meeting for clues on future interest rate hikes.
Gold futures climbed 0.7 percent to $1,235 per ounce early Wednesday morning.
“This outcome of the midterm elections was expected by the financial markets. It would have been a big thing if gold was surprised by that,” said Julius Baer analyst Carsten Menke.
“Today we just see gold moving in lock-step with dollar, the dollar is down and that is what is mirrored in the gold price.”
The dollar index fell half a percent against its main rivals, making bullion more attractive for holders of other currencies, as a split Congress dampened expectations for a major fiscal policy boost to the economy.
Democrats won control of the House of Representatives, giving them the opportunity to block President Donald Trump’s push for a further round of tax cuts and deregulation — measures that have turbo-charged the economy, stock markets, and the dollar, and have kept the Fed on a policy-tightening path.
“This will presumably put paid to any further tax cuts, which means in the longer term that the Fed will need to implement fewer rate hikes, which per se will have a negative impact on the U.S. dollar,” Commerzbank analysts said in a note.
“President Trump may instead focus more on foreign policy, which is likely to generate additional uncertainty. Gold would profit long-term from both factors.”
Investors often turn to gold as an insurance during times of financial and political uncertainty.
Market participants will now keep a close eye on a two-day Fed meeting starting later in the day to gauge the outlook for monetary policy.
While the Fed is expected to keep interest rates steady, markets are waiting to see whether it offers clues about possible rate increases in December and in 2019.
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