The US midterm elections handed both chambers of Congress to Democrats, prompting swift market repricing. Precious metals rebounded sharply on Wednesday, with spot gold closing up by more than $130 at about $4,060 an ounce and spot silver gaining nearly 5% to move above $52. Both metals recovered from October's pullback, with silver showing greater elasticity.
After the election, policy expectations in Washington shifted. Democratic control of both chambers means tax cuts, spending expansion and legislation tied to energy, technology and finance are harder to advance quickly, and markets believe fiscal stimulus and new borrowing pressure may cool. However, budget deficits and existing spending commitments still constrain US fiscal room. The election outcome does not directly change the Federal Reserve's policy path, but it may raise scrutiny of artificial intelligence investment, federal energy policy and Iran-related military actions.
Bond and currency markets reacted in tandem. The benchmark 10-year US Treasury yield eased to about 4.88%, the two-year yield fell to about 4.55%, and the dollar weakened against major currencies. A sharp decline in oil prices also lowered inflation expectations, with Brent and WTI falling about 8.7% and 8.3%, respectively, to near $94.6 and $88.1 a barrel. For gold, lower yields and a softer dollar provided the most direct support, while falling borrowing costs also improved silver's financial attributes.
Economic data offered no clear direction. October ADP private-sector payrolls rose by 86,000, slightly above expectations, with hiring concentrated in trade, transportation and utilities, education and health services, and leisure and hospitality, while professional and business services employment declined. The ISM services index eased to 54.5, still indicating expansion, but declines in new orders and the prices-paid index pointed to slower demand and slightly easing cost pressures. The September trade deficit narrowed modestly to $105 billion, with both exports and imports rising, suggesting trade remained resilient despite high rates and geopolitical uncertainty. Final readings for services PMIs were revised lower, further confirming that expansion was cooling.
Investors awaited employment data. Thursday's initial jobless claims and third-quarter productivity data, along with Friday's October nonfarm payrolls report, will shape expectations for the Fed's December meeting. If hiring slows and wage pressure eases, pushing rate-hike expectations lower, gold may continue to benefit; if jobs and price pressures remain firm, the durability of the precious metals rebound will be tested.
The Middle East situation remains equally critical. The Strait of Hormuz and US-Iran relations are still sources of risk, but after the Democrats' victory, markets expect Washington to face greater political pressure and to lean more toward negotiating a de-escalation. The new congressional landscape makes additional military funding harder to approve and increases scrutiny of Iran-related actions. Diplomatic contacts, including those involving Qatar, are continuing, and expectations of progress on a framework agreement addressing sanctions relief, nuclear activities, maritime security and blockades have risen, boosting hopes for restored commercial shipping passage. However, attacks, blockades and military frictions could still derail talks. The oil price decline mainly reflected easing short-term escalation concerns, while supply risks have not disappeared.
Equity markets drew support from the election outcome and lower oil prices. Major North American stock indexes rose sharply, with the Dow climbing about 3%, the S&P 500 gaining nearly 1.6%, and the Nasdaq and Russell 2000 also advancing. Hospital operators and retailers serving low-income consumers rose as markets bet on healthcare and household assistance policies, while artificial intelligence firms and defense contractors came under pressure as regulatory and spending expectations shifted. Canada's benchmark equity index rebounded, with precious metals miners lifted by gold and silver prices, while some energy companies were pressured by falling oil prices. European stocks broadly advanced, helped by lower energy costs and improving corporate earnings across industrials, autos and consumer names, but euro-area inflation for October rose to 4%, showing that price pressures remained stubborn.
On the technical front, gold's near-term resistance sits near $4,068; if it holds above and continues higher, it may target $4,200. Support is around $3,975, and a break below would open up wider corrective downside. Silver's key resistance is near $52.8; a breakout could invite further tests of $55. Support is around $51.1, and a fall below could lead to a retest of lower levels. Traders are turning their focus to employment data, Fed policy signals and the Strait of Hormuz situation.
