Gold Benefiting From Weaker U.S. Dollar Following U.S. Midterms
(Kitco News)- A shift in the political landscape following Tuesday’s midtermelections in the U.S. is only having a material impact on gold prices as the U.S.dollar loses some momentum.
As many political pundits expected, the Democratic Party regainedcontrol over the House and the Republican Party retained control over theSenate, expanding their majority by five seats.
While the U.S. dollar is losing some momentum on Wednesday,pressured by the threat of political gridlock in Washington, many analysts saythat the election outcome won’t have a significant impact on the domesticeconomy, which could ultimately prove to be negative for gold.
“With Congress divided, Trump and the Senate Republicans won’t beable to make any major legislative changes without the approval of Democrats,”said Andrew Hunter, U.S. economist at Capital Economics. “This means that theRepublicans’ hopes of a second round of tax cuts are probably now dead in thewater. That may explain the modest softening in the dollar and decline inTreasury yields this morning.”
Jameel Ahmad, global head of currency strategy and marketresearch at FXTM, said that while the U.S. dollar appears overvalued, it is tooearly to tell if the election results will have a significant impact on itsuptrend.
“At the moment we do see some near-term pressure on the USD, butthe jury is very much out for how long this could last,” he said. “Investorswould need to see some fundamental shifts that the outcome in the midtermscould really change matters behind the scenes to receive the neededencouragement to drag the Greenback further lower moving forward.”
Currency analysts at Brown Brothers Harriman said that they alsosee U.S. dollar weakness as a short-term trend.
“While the knee-jerk reaction today is to push US yields down andsell the dollar, we think the previous drivers will re-assert themselves,” hesaid. “That is, wage and price pressures will continue rising, leading the Fedto tighten in December followed by at least three hikes in 2019.”
Colin Cieszynski, chief market strategist at SIA WealthManagement, said that he doesn’t think the election results are overly bullishfor gold, even as it creates further geopolitical uncertainty.
However, he added that he is still optimistic that gold couldcreep higher because of rising inflation pressures.
“We are starting to see higher commodity prices across the boardand rising wages. This creeping inflation will provide an important floor forgold,” Cieszynski said.
Commodity analysts at the Hightower Report said that the U.S.dollar’s reaction to Tuesday’s election could be another signal that thegreenback has hit its top.
“The election result seems to have shaken out as netpositive to gold and silver, with the potential investment/dollar driven gainshealthier than safe-haven interest in the long run,” the analysts said. “In theshort term, currency and equity market action lean in favor of the bulls and areturn to the November high at $1,239.30 in December gold could be an easynear-term target.”
By Neils ChristensenFor Kitco News
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