Gold climbed toward 4,150 dollars an ounce on Thursday, extending the previous session gains and taking the metal to two week highs, as the dollar weakened and Treasury yields fell after the US midterm elections. Spot gold had risen 3 percent on Wednesday to about 4,045 dollars an ounce, and gold futures advanced 2.9 percent to 4,056 dollars, before the rally continued into Thursday. Silver climbed 4.3 percent to 52 dollars, platinum rose 3.4 percent to 1,464 dollars and palladium gained 5.6 percent to 985.5 dollars, a broad precious metals move that describes a market buying protection.
Why it matters
The dollar is the other half of the story. The dollar index, which measures the greenback against a basket of currencies, fell 0.34 percent to 101.22 on Wednesday, its largest single day decline in two months, and fell further on Thursday to around 101.25, its lowest level since September 30. A weaker dollar makes gold cheaper for buyers in other currencies, and it also signals that investors expect less fiscal expansion and less inflation pressure from a divided American government. Gold and the dollar often move in opposite directions, and this week they have done so emphatically.
The bond market agrees with the gold market. The yield on the benchmark 10 year Treasury note fell to about 4.88 percent on Wednesday and slipped further on Thursday to around 4.85 percent, its lowest level since September 10, while the 30 year yield eased to 5.24 percent. When yields fall, gold becomes more attractive, because it pays no interest and therefore loses less ground to bonds. The combination of a weaker dollar and lower yields is the classic setting for a gold rally, and this week has supplied both.
What happens next
Analysts caution that the rally is not yet a lasting recovery. Gold remains below its level of a month ago, markets still price a strong chance of a Federal Reserve rate rise in December, and speculators trimmed their bets through October. A hold above 4,000 dollars after this week jobs and inflation data would signal a lasting recovery, according to analysis published on Thursday, while a failure to hold that level would suggest the move was mainly a reaction to the election rather than a change in trend.
For households and investors, the practical meaning is modest but real. Gold is a hedge, not an income, and its rise tells us more about fear than about growth. It tells us that investors expect gridlock in Washington, a quieter Gulf, and a Federal Reserve that will be guided by data rather than by politics. If Friday jobs report changes that picture, gold will move again. Until then, the metal is doing what it has always done in uncertain weeks: rising while everything else is being repriced.
