- A Reuters poll revealed a 46% likelihood of winning for Kamala and 43% for Trump.
- Gold has risen over 33% this year.
- Israel owned up to killing the heir to the Hezbollah leader who died last month.
Gold prices rose by 1% to a record high on Tuesday and extended the move Wednesday due to safe-haven demand. Market participants are flocking to gold amid political uncertainty ahead of the US election. At the same time, developments in the Middle East have raised demand for the yellow metal.
Spot gold (Source: Bloomberg)
The US presidential election is drawing nearer, and it is a tight race between Kamala and Trump. Initially, bets had shown Trump in the lead, which boosted the dollar and Treasury yields. However, a Reuters poll revealed a 46% likelihood of winning for Kamala and 43% for Trump. The tighter the race, the more the uncertainty. Therefore, the outcome could cause market volatility and turmoil. For this reason, investors are dumping risky assets and buying safer ones like gold.
Although both leaders have policies that could increase inflation, a Trump win will more likely increase borrowing costs. Gold does poorly when borrowing costs rise. However, other factors like safe-haven demand and central bank purchases might support prices.
In the Middle East, tensions remained high after Israel owned up to killing the heir to the Hezbollah leader who died last month. Developments in this war will keep traders on edge, with most preferring the safety of bullion.
Gold has risen over 33% this year due to several factors, including rate-cut optimism and geopolitical tensions. While the outlook for Fed rate cuts has shifted slightly, the US central bank might still lower borrowing costs twice more this year. However, US data has shown a resilient trend in recent weeks.
Last week, US retail sales jumped by 0.4% compared to estimates of a 0.3% increase. The unexpected increase showed that consumer spending was higher than expected in September. Meanwhile, unemployment claims dropped from 260,000 to 241,000, showing tight labor market conditions. Consequently, market participants dismissed the likelihood of another 50-bps rate cut in November. Still, there is a 92% chance of a 25-bps cut.
This week, all eyes will be on US manufacturing and service sector business activity data. Continued resilience might lower the likelihood of a November rate cut. On the other hand, gold will climb if data shows unexpected weakness.
