Gold Forecast: What Does US Midterm Election Madness Mean for Gold?

Gold usually gets excited around elections – any elections. But historically, gold’s mild upswings around the US midterms have ultimately proven to be no biggie. It’s like someone getting a bit tipsy at a party and being very lively with their friends – but as soon as the music dies down they promptly go to sleep. Nothing to write home about.

Remember when Trump was elected as the U.S. President? And remember what happened to the price of gold at that time?

I marked in on the above chart, but to make it clearer, I’ll zoom in.

Gold truly soared during the 2016 U.S. Presidential elections, but it didn't change the medium-term trend - it remained down despite the short-term price spike.

The election-based price spike took place after a corrective short-term rally.

And what happened yesterday and in the preceding days?

Gold moved sharply higher after a short-term rally. The history tends to rhyme, so I doubt that yesterday’s price action is able to trigger a sustainable rally.

That was just a single daily close above the declining, medium-term resistance line (marked with blue), and the 50-day moving average. Will this breakout be confirmed? Again, I doubt it.

Interestingly, based on yesterday’s rally, the gold-based RSI moved slightly above 60. That’s exactly what happened back in 2016 after the U.S. Presidential elections. And that was a local top – right before a massive slide. Gold then declined by almost 16% in less than two following months.

If the same was to happen now, gold would move to about $1,450. And yes, that would be in perfect tune with my previous analyses. That’s where we have strong support based on the 2020 lows.

Real Interest Rates and the USDX

Let’s keep in mind that the two key fundamental drivers of gold price are: the real interest rates, and the USD Index.

The real interest rates are clearly headed higher (nominal rates are going up, and eventually inflation is likely to come down), which is bearish for gold.

And the USD Index…

In short, the USD Index remains in its flag pattern that started in September. A flag pattern is a continuation pattern where the price trades sideways (but slightly against the trend) and it continues… until it doesn’t. Quite often, the pattern ends after two or three bottoms. We already had two, and it seems that the third one is about to be formed or it has already formed.

The RSI is slightly below 50 and the USDX itself is a bit below its 50-day moving average (blue line). In the previous months, this combination of factors meant that another sizable rally was just around the corner. As history tends to rhyme, the implications are bullish.

Since March, gold has been moving in the opposite direction to the USD Index, so the implications of the above are bearish for gold and the rest of the precious metals sector.

Why wasn’t gold moving against the USD Index in February? Because of the fear and uncertainty related to the Russian invasion of Ukraine. Please note that the war in Ukraine is still in place, and yet, gold is hundreds of dollars below its 2022 high. This serves as a strong confirmation of gold’s current weakness.

All in all, despite the very recent upswing in gold, the outlook for the precious metals sector remains highly treacherous. Gold has more to worry about in the near future than the midterm elections, with people being more focused on inflation, interest rates, and fears of a global recession. The signs point to the bear market still having plenty of room to run.

Of course, the above is up-to-date at the moment of writing these words, and as soon as the outlook changes, I’ll post an update. In fact, I’ll be posting quite many updates in the following days and weeks, and if you’d like to receive them, I invite you to sign up for my free gold newsletter. As a starting bonus, you’ll get a free 7-day no-obligation trial access to my premium Gold & Silver Trading Alerts. It’s really free – sign up today.

Thank you.

Przemyslaw Radomski, CFA
Founder, Editor-in-chief
Sunshine Profits - Effective Investments through Diligence and Care

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All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses are based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are deemed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

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