Spot gold rose to a more than two-week high of around $4,100 per ounce in early Asian trading on Friday (November 6), supported by a weaker dollar and falling oil prices. Traders will be closely watching the US September jobs report released later on Friday for clues about interest rate policy. Precious metals extended their gains after the Democrats swept the US midterm elections. Democratic control of Congress caused a sharp drop in oil prices, with markets speculating that the election would accelerate the end of the Iran conflict and prompting investors to reduce their bets on a Federal Reserve rate hike. "The expectation of a rate hike hasn't completely disappeared yet," said a metals trading director at an institution. "With weaker energy prices, the market expects some inflation concerns to subside, and the demand for future rate hikes may decrease."

Interest rate hike expectations: 70% probability in December; non-farm payrolls will be the next test.

According to the CME FedWatch tool, the market is currently pricing in a near 70% probability of a Fed rate hike in December. Higher interest rates increase the opportunity cost of holding non-yielding gold. Friday's US jobs data will be the focus, potentially providing clues about the central bank's path. Non-farm payrolls are expected to show an increase of 65,000 jobs in September, with the unemployment rate expected to remain unchanged at 4.2% over the same period. Any signs of improvement in the US labor market could boost the dollar and suppress dollar-denominated commodity prices in the short term. While rate hike expectations have retreated from their highs, a 70% probability still means a rate hike is the baseline scenario, and the upside potential for gold is limited by whether this expectation can cool further.

Institutional View: Gold is beginning to respond more positively to favorable macroeconomic conditions.

One institutional strategist noted that "precious metals rebounded sharply after the US midterm elections, supported by a weaker dollar, lower US Treasury yields, and lower oil prices, as the market reassessed the impact of the political gridlock on US fiscal policy and growth." They emphasized that "gold rose about 3%, regaining the $4,000 mark," with expectations that the political gridlock could constrain fiscal expansion and suppress US growth "providing some relief for yields," while "the decline in oil prices also provided support." The institution noted that "encouragingly, after previously being reluctant to benefit from lower yields and a weaker dollar, gold has begun to respond more positively to a favorable macroeconomic backdrop." The bank is "cautiously optimistic that gold may be finding its footing," but stressed that "further gains may require a easing of expectations for Fed tightening and a continued recovery in investment demand." The strategist added that they "continue to monitor real yields, dollar direction, oil prices, and ETF flows for signs of sustained buying," and marked "Friday's US non-farm payrolls" as "another important test."

Market Outlook: Three Conditions to Determine Whether the Rebound Can Continue

In summary, the current rebound in gold prices is based on three channels: a weaker dollar reduces price pressure on dollar-denominated gold; lower US Treasury yields reduce the opportunity cost of holding non-yielding assets; and falling oil prices ease inflation concerns, thereby reducing the urgency of interest rate hikes. However, the sustainability of each of these channels is conditional: a weaker dollar depends on whether the pricing of post-election political gridlock continues; lower yields depend on the market's reassessment of fiscal policy and growth; and falling oil prices depend on whether the situation in the Middle East can be substantially eased. The institutional assessment that "further gains require a cooling of interest rate hike expectations and a recovery in investment demand" reflects this convergence of these three channels.

in conclusion

Spot gold rose to a more than two-week high of around $4,100 per ounce, supported by a weaker dollar and falling oil prices. Following the Democratic sweep of the midterm elections, oil prices plummeted due to expectations of an end to the war, and investors reduced their bets on interest rate hikes, lowering the probability of a December rate hike to about 70%, though this still implies a rate hike is the baseline scenario. Analysts point out that the significant rebound in precious metals, regaining the $4,000 level, indicates that gold has begun to respond more positively to a favorable macroeconomic backdrop, but further gains require a easing of expectations of Fed tightening and a continued recovery in investment demand. Short-term direction depends on Friday's non-farm payrolls data—strong data would lead to a stronger dollar and rising rate hike expectations, suppressing gold prices; weak data could strengthen the rebound. Real yields, dollar direction, oil prices, and ETF fund flows are key indicators for judging sustained buying pressure. (Spot gold daily chart, source: FX678) At 10:42 Beijing time, spot gold was trading at $4075.75 per ounce.