Spot gold rises amid fluctuations, why can't an over 80% probability of a December rate hike bring it down?

Huitong Network, November 5—— Gold climbed higher on Thursday, currently trading around $4,125, marking its second consecutive day of gains. The US dollar extended its post-election decline, hitting its lowest level since late September; the Democratic Party's victory reduced expectations of escalation with Iran, sending oil prices to a two-month low and easing inflation concerns. However, the probability of a rate hike in December exceeds 80%, and expectations of tighter policy from several major central banks are capping further upside. In the short term, focus is on Friday's Non-Farm Payrolls and developments in the Middle East.

Spot gold rose during the Asian session on Thursday (November 5), posting a second straight day of gains and currently trading near $4,125 per ounce, after having touched $4,146.79/oz earlier in the day, its highest in nearly two weeks. The US dollar continued to drop following the US election results, falling to the lowest level since late September, which helped gold build on its more than 3.5% surge the previous day—the largest single-day gain since mid-August.

Election and Oil Prices: Democratic Victory Lowers Escalation Expectations, Oil Drops to Two-Month Low

The Democratic Party's overwhelming victory in the US midterm elections has removed a major source of uncertainty and reduced expectations that President Trump would resume military strikes against Iran.

In fact, Senate Democratic leader Schumer vowed on Wednesday to push for an end to the Iran conflict, saying his party could use its control over government funding to pressure for this goal.

This optimism dragged crude oil prices to a two-month low, easing inflation concerns.

Additionally, the fiscal deadlock in Washington may further lower expectations for government spending, putting downward pressure on US Treasury yields and keeping the dollar subdued, all supporting gold.

Institutional Views: Market Reaction Falls Short of Election Scale, Subsequent Policy Response Determines Dollar’s Path

Institutional analysts observed, “The scale of the Democratic victory—which has surpassed all previous forecasts—has not matched the magnitude of market volatility,” with the dollar and US Treasury yields only moderately weakening so far.

They believe the shift in the political landscape could still be decisive for the US dollar: “If subsequent developments reprice policy or geopolitical risks, that will certainly reverse the current downward trend in the dollar and US Treasury yields.”

On the other hand, the institution suggested, “If Trump does not attack Iran and interprets voter rejection of his policies as a reason to seek deals, the possibility of a continued weak dollar increases significantly,” highlighting that post-election policy responses may determine whether the current dollar retracement deepens or reverses.

Rate Hike Constraints: December Probability Above 80%, Multiple Central Bank Hike Expectations Limit Gold's Upside

Despite the change in the political landscape, expectations for further Fed tightening remain largely unchanged.

CME FedWatch shows traders still pricing in over an 80% probability of a December rate hike, with a stronger-than-expected ADP report further supporting this bet—86,000 private sector jobs were added in October, unchanged from the prior month after revisions; the ISM Services PMI eased to 54.5 from 54.9 but remains above the 50 expansion threshold.

Furthermore, expectations for rate hikes by other major central banks may limit the upside for non-yielding gold: The Bank of England is expected to raise rates by 25 basis points later today, the Bank of Japan’s September minutes showed policymakers discussing the need to maintain or even accelerate rate hikes, and markets are also pricing higher odds of December rate hikes by the European Central Bank and Swiss National Bank.

This requires caution before betting on further increases in precious metals.

Data Focus: Nonfarm Payrolls & FOMC Speeches, Middle East Developments May Add Volatility

Traders may choose to wait for Friday’s release of the US monthly Nonfarm Payrolls report.

This key data point, along with influential FOMC member speeches, will be used to seek more clues about the Fed’s future policy path and drive near-term dollar demand.

In addition, further developments in the Middle East could inject volatility, providing some momentum for gold prices.

Institutional Views

Goldman Sachs lowered its year-end 2026 gold price forecast to $4,650/oz from $4,900/oz, but maintained its year-end 2027 target of $5,400/oz.

Analysts believe Fed monetary tightening may slow gold’s short-term upward momentum, with rising real rates and a stronger dollar as headwinds, but continued central bank gold purchases and a trend toward FX reserve diversification remain core structural factors supporting gold’s medium-to-long-term performance.

Standard Chartered investment strategist Anthony Naab stated the bank is maintaining its overweight rating on gold, but has revised down its 3- to 12-month price targets: three months to $4,350/oz and twelve months to $4,700/oz.

Despite short-term headwinds from rates and the dollar, Standard Chartered still sees upside potential for gold, with structural demand (central bank buying, investment demand) likely limiting downside.

The bank noted that current price levels have already partly priced in rate hike expectations; if energy prices and inflationary pressures ease, and real rates peak, gold prices are expected to recover.

Conclusion

Gold is extending its gains for the second day, driven mainly by the dollar’s continued post-election decline, touching its lowest since late September. The Democratic victory reduces expectations of Trump resuming military action against Iran, with oil falling to a two-month low and easing inflation worries, while fiscal gridlock expectations depress US bond yields, all supporting gold prices. However, institutions note that the market reaction is less than proportional to the election outcome, and subsequent policy responses will determine whether the dollar’s pullback deepens or reverses. December rate hike expectations remain above 80% and anticipated hikes from the Bank of England, Bank of Japan, ECB, and Swiss National Bank act as upside constraints. The short-term direction depends on Friday’s Nonfarm Payrolls and FOMC speeches' impact on rate expectations, as well as Middle East developments and Trump’s response to the election result.


(Spot Gold Daily Chart, Source: YiHuitong)

14:52 (GMT+8), spot gold quoted at $4,126.78/oz.