Gold extends rebound above US$4,100 as dollar and yields decline

Gold extended gains — after jumping more than 3% on Wednesday — as a Democratic sweep of Congress in the US midterm elections sent the dollar and Treasury yields lower.

Bullion rose as much as 1.9% to trade near US$4,140 an ounce, after rising the most since August in the previous session to back above the US$4,000 support threshold.

Treasury yields fell across the curve on Wednesday and the dollar weakened 0.4% on the election result, which delivered a sharp rebuke of the Trump administration. Both the greenback and yields dropped further on Thursday.

Lower yields tend to support gold as it doesn’t pay interest, while a weaker dollar makes the precious metal cheaper for buyers in other currencies.

Brent crude oil futures extended a sharp decline, after dropping below US$100 a barrel on Wednesday for the first time since early October, as President Donald Trump played down the prospect of Iran strikes after the election rout.

Bullion’s rebound is its biggest break yet out of a months-long slump, but it’s still down by more than a fifth since the US-Iran war erupted in late February, as the resulting spike in energy prices spurred tighter monetary policy.

“Encouragingly, gold is responding to supportive macro conditions again,” Oversea-Chinese Banking Corp analysts including Sim Moh Siong said in a note. “We are cautiously optimistic that gold may be finding its footing, though easing Fed tightening expectations and renewed investment demand remain key to sustaining gains.”

Traders will be looking to the US payrolls report due Friday for more clues on the direction of the economy and interest rates. Signs that inflation is contained would give the Federal Reserve more room to pursue easing monetary policy.

Spot gold rose 1.7% to US$4,127.02 an ounce at 10.32 am in Singapore. Silver was 1.8% higher at US$53.15 after jumping almost 5% on Wednesday. Platinum and palladium also advanced. The Bloomberg Dollar Spot Index, a gauge of the US currency, was down 0.2% after falling 0.4% in the previous session.