Gold price extended its recovery on Thursday as investors digested the outcome of the US midterm elections and what it could mean for inflation. The metal climbed to $4,143, its highest level since October 22 and 7.18% above its lowest point this month. The rally could continue ahead of the US nonfarm payrolls (NFP) data.

Gold price jumps as crude oil sinks

Gold extended a rally that started on Monday when it dropped to the multi-month low of $3,875. This rally gained steam as crude oil dropped, with Brent moving to $93 and the West Texas Intermediate (WTI) moving to $86.80.

The price action is mostly because investors believe that Trump has no easy way out of his disastrous Iran war that cost him the Senate and the House of Representatives.

One suggestion is that Trump may rule out launching new strikes against Iran since that move will lead to a prolonged war with no way out. The risk, however, is that, sensing his desperation, Iranians may launch the first strikes. 

Trump may also decide to restart his negotiations with Iran. However, Iran has maintained that the starting point will be its seven-point demands, which includes the end of the blockade, sanctions relief, reparations, and the return of its held $13 billon. 

The falling oil prices are bullish for gold because they point to lower inflation in the future. This explains why US bond yields are falling, with the ten-year dropping to 4.83% and the five-year falling to 4.6%. 

Gold tends to perform well when bond yields are in a sustained downtrend, because it is a non-yielding asset and the opportunity cost of holding it falls. When yields rise, investors often rotate into Treasuries to earn a steady return.

US nonfarm payrolls data

The next important catalyst for gold will be the US nonfarm payroll (NFP) data that comes out on Friday. Economists expect the report to show that the economy added 67k jobs last month, a modest increase from the 29k it added a month earlier. 

Recently, however, the official jobs report has missed the estimates by far. For example, last month, the September NFP report came in at 29k, much lower than the expected 89,000. 

A strong jobs report may push the Federal Reserve to hike interest rates in the upcoming meeting in December. On the other hand, if the jobs report comes out lower than expected, the Fed may decide to pause its rates.

XAU price technical analysis

Gold price chart | Source: TradingView

The daily chart shows that gold has staged a strong recovery in the past few days. It has now moved above the important level of $3,936, its lowest level in June. 

Gold has also jumped above the Strong, Pivot, Reverse level of the Murrey Math Lines tool, confirming the bullish breakout. It has also spiked above the upper side of the descending channel.

Gold is now attempting to jump above the 50-day moving average. If this happens, the rally may continue, pushing it to the Major S/R pivot point of the Murrey Math Lines tool at $4,375. 

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