Gold prices edged lower from a two-week high reached during Thursday's Asian session, but remained on track for a second consecutive daily gain, trading around the $4,130 level. The US Dollar extended its post-election losses, falling to a fresh low since late September. This weakness helped gold extend its strong rally of more than 3.5% in the previous session, marking its largest single-day gain since mid-August.
On the four-hour chart, XAU/USD maintains a constructive technical outlook following Thursday's breakout above the 23.6% Fibonacci retracement of the August–October decline and the 200-period Simple Moving Average (SMA). Meanwhile, the Relative Strength Index (RSI) stands at 75.77, indicating overbought conditions. The Moving Average Convergence Divergence (MACD) line remains above its signal line, with a widening positive histogram, suggesting that bullish momentum is still intact despite the increasingly extended rally.
The immediate focus is whether gold buyers can push prices above the 38.2% Fibonacci retracement at $4,186 without triggering a corrective pullback due to overbought conditions. The next resistance levels are aligned with the 50.0% Fibonacci retracement at $4,283, followed by $4,380. Further upside barriers are located at $4,518 and $4,695, potentially limiting the broader medium-term recovery.
On the downside, the 200-period SMA near $4,124, followed by the 23.6% Fibonacci level at $4,065, could provide initial support. A decisive break below the latter would expose the next major structural support near the recent cycle low of $3,871.
US Election Results Weigh on the Dollar
The Democrats' decisive victory in the US midterm elections removed one of the major sources of political uncertainty and reduced expectations that US President Donald Trump would pursue further military action against Iran.
On Wednesday, Senate Democratic Leader Chuck Schumer pledged to push for an end to the Iran war, adding that his party could use its influence over government funding to advance that objective. The developments boosted market optimism and sent crude oil prices to a two-month low, easing concerns over inflation.
Meanwhile, expectations that a prolonged fiscal deadlock in Washington could further constrain government spending placed additional downward pressure on US Treasury yields. The combination of weaker yields and a softer US Dollar provided further support for gold prices.
Dollar Reaction Remains Muted Despite Democratic Victory
Analysts at MUFG/BTMU noted that the scale of the Democratic Party's victory, which exceeded previously reported expectations, had not yet been matched by an equally significant reaction in financial markets. So far, both the US Dollar and Treasury yields have recorded only modest declines.
The analysts also highlighted that political developments could remain a decisive factor for the currency. Any subsequent shift in policy or geopolitical risk assessments could potentially reverse the current weakness in the Dollar and US Treasury yields.
Conversely, MUFG/BTMU suggested that if Trump refrains from attacking Iran and interprets voter opposition to his policies as a reason to pursue a diplomatic agreement, the US Dollar could face an extended period of weakness.
This highlights how the administration's post-election policy response could determine whether the current Dollar correction deepens or eventually reverses.
Fed Rate Hike Expectations Remain Elevated
Despite the political shift, market expectations for further monetary tightening by the US Federal Reserve (Fed) have remained largely intact.
According to the CME Group FedWatch Tool, traders continue to price in more than an 80% probability of a Fed rate hike in December.
These expectations received additional support from a stronger-than-expected US ADP employment report, which showed that private-sector employment increased by 86,000 jobs in October 2026, matching the previous month's downwardly revised reading.
Separately, the Institute for Supply Management (ISM) Services PMI declined to 54.5 last month from 54.9 in September. However, the reading remained comfortably above the 50-point threshold, indicating continued expansion in the US services sector.
Global Central Banks Could Limit Gold's Upside
Expectations of further interest rate increases by other major central banks could also limit gains in non-yielding gold.
The Bank of England (BoE) is widely expected to raise its benchmark interest rate by 25 basis points (bps) at its policy meeting later today.
Meanwhile, the minutes of the Bank of Japan's (BoJ) September meeting revealed that policymakers discussed the need for continued and potentially faster interest rate increases.
Markets are also assigning greater probabilities to potential December rate hikes by the European Central Bank (ECB) and the Swiss National Bank (SNB).
Higher interest rate expectations across major economies could increase the opportunity cost of holding gold, making investors more cautious about chasing further gains in the precious metal.
US Nonfarm Payrolls in Focus
Traders may prefer to remain on the sidelines ahead of Friday's closely watched US monthly employment report, known as the Nonfarm Payrolls (NFP).
The upcoming employment data, alongside speeches from influential Federal Open Market Committee (FOMC) members, will be closely monitored for further clues about the Fed's future monetary policy direction.
These developments could influence near-term demand for the US Dollar and determine whether gold can extend its recent recovery.
In addition, any further developments surrounding the Middle East crisis could trigger fresh market volatility and provide another potential catalyst for gold prices.
Overall, gold retains a bullish short-term bias as the weaker US Dollar and declining Treasury yields provide support. However, overbought technical conditions, elevated Fed rate hike expectations, and upcoming US employment data could trigger profit-taking and limit the precious metal's immediate upside.
