FX.co ★ XAU/USD, GOLD

Gold (XAU/USD) Daily Outlook Update Gold (XAU/USD) has a bullish outlook as the American session begins on Wednesday. Gold rallied strongly after the US midterms, which paved the way for a gridlocked government in Washington. At the moment, XAU/USD is trading around $4,043, up 3.10% for the day. The Democrats have taken control of both houses of Congress, so the Trump administration will need their cooperation to pass new legislation, spend money, cut taxes, or raise the debt limit. The ensuing political uncertainty is boosting the safety of the precious metal while pressuring the USD. The US Dollar Index (DXY), which reflects the performance of the Greenback versus a basket of six major currencies, is trading at 101.30, down 0.54% during the session. However, the yellow metal's recovery may be hard to sustain amid rising energy prices in the Middle East and inflation risks, which have markets positioning for more interest rate hikes by the Fed and other central banks. Higher rates hurt non-interest-bearing commodities because they increase the opportunity cost of holding them. According to the strategists of Societe Generale, the Democrats' blue wave in the US "should not change the direction of travel for the Fed, at least not in the short term," and "a 25bp rate increase in December" is viewed as "a high probability event." At the same time, the bank's economics team warns of higher risks of a government shutdown amid uncertainty over the US fiscal situation, which may be behind gold's recovery above $4,000. The CME FedWatch Tool shows an 82% probability of a rate rise in December. The focus shifts to US economic data for hints on the Fed's policy stance. On Wednesday, the ADP Employment Change and ISM Services PMI will be released, followed by Initial Jobless Claims and NFP on Thursday and Friday, respectively. XAU/USD is moderately bearish on the daily chart as long as price continues trading below the 20-day SMA middle Bollinger band at $4,074. Price is also limited higher by resistance at the upper Bollinger band around $4,253. This means rallies will continue to face difficulty, especially as the RSI rises toward 46 in neutral territory while MACD is negative but showing signs of stability. For support, immediate support comes at the $4,000 psychological level, followed by the lower Bollinger Band around $3,894 and the year's low of $3,870. For resistance, a break above the mid-Bollinger Band at $4,074 will ease bearish pressure. Still, price will face stronger resistance at the upper Bollinger Band around $4,253, followed by $4,400.