ING strategists Warren Patterson and Ewa Manthey note that Gold has jumped back above $4,000/oz after the Democratic sweep in the US midterms, helped by lower Treasury yields, a weaker Dollar and strong central bank buying. They caution that near-term prospects remain challenging as inflation keeps monetary policy expectations tight and Middle East developments stay crucial.

Central bank demand offsets policy risks

“Spot gold jumped more than 3% yesterday, climbing back above $4,000/oz following a Democratic sweep in the US mid-term elections. Expectations of legislative gridlock, lower Treasury yields and a weaker dollar are supporting the move.”

“Meanwhile, central bank buying continues to provide underlying support, with official-sector demand remaining strong in September. Central banks added 61 tonnes during the month, according to the World Gold Council, while third-quarter purchases reached 228 tonnes (-7% year-on-year). Poland and China continued to lead purchases, reinforcing the structural demand story for gold.”

“Despite the rebound, the near-term outlook remains challenging for the precious metal. Inflation concerns continue to support expectations for tighter monetary policy. But much depends on developments in the Middle East and what they mean for energy markets.”