XAU/USD extends rally as Democrats’ victory weakens US yields

• Gold extends the advance to near $4,135 as US Democrats take control of both Houses.
• The victory of US Democrats has weighed heavily on the US Dollar and US Treasury Yields.
• Investors keenly await the US NFP data for October.

Gold rallies further to near $4,135 in the Asian trade on Thursday, the highest level seen in almost two weeks. The precious metal continues to attract bids as the victory of United States (US) Democrats in both the House and the Senate has weighed heavily on US bond yields and the US Dollar (USD).

ING argued that Democrat clean sweep would likely “lead to gridlock on the debt ceiling, a prolonged government shutdown next year”. The bank further warned that “fears of tougher regulation could weigh on Artificial Intelligence (AI) stocks (we’ve recently seen how that can hit the greenback)”.

As of writing, 10-year US Treasury Yields are down 1% to near 4.84%. This is the lowest level seen in over six weeks. Theoretically, lower yields on US interest-bearing assets result in an improvement in the appeal of non-yielding assets, such as Gold.

Meanwhile, the US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, trades 0.22% lower to near 101.26. The DXY is close to its monthly low of 101.10 posted on Wednesday.

Technically, a lower US Dollar makes the Gold price a favorable risk-reward bet for investors.

The next key trigger for global markets and the Gold price is the US Nonfarm Payrolls (NFP) data for October, which will be released on Friday. The NFP data is expected to have a significant impact on Federal Reserve’s (Fed) interest rate expectations.

Ahead of the US official employment report, ADP Employment Change data for October has set a negative tone. On Wednesday, the data showed that the private sector created 86K fresh jobs, higher than 69K estimates.

According to TD Securities, the upcoming US October employment report is likely to remain soft, with the bank expecting nonfarm payrolls to come in at a “subdued” 40k, following job gains that “moderated to 29k in September.” Even so, TD stresses that, “despite the subdued, below-consensus print, our forecast would be within the range of breakeven job gains and result in an increase in the three-month moving average.”

In the daily chart, XAU/USD trades at $4,138.12. The metal has pushed back above its 20-day Exponential Moving Average (EMA) at $4,069.85, tilting the near-term bias to the upside as price is now supported by this short-term trend gauge. Momentum has improved, with the Relative Strength Index (RSI) at 52.95 edging into positive territory, which suggests that buying pressure is re-emerging after the recent pullback, though not yet at an overextended stage.

On the downside, initial support is located at the 20-day EMA around $4,069.85, where a decisive break would undermine the nascent bullish tone and open the door for a deeper retracement. While no clear overhead technical barriers are defined by the available indicators, the bias remains constructive as long as XAU/USD holds above the 20-day EMA, with further gains likely to face supply at prior swing highs on the broader chart.