XAU/USD recovers modestly as oil prices decline, US elections in focus

• Gold rebounds to near $3,900 as oil prices come under pressure.
• Washington signals that it prefers a diplomatic resolution with Iran.
• Investors keenly focus on US mid-term elections and the NFP data.

Gold attracts some bids at the start of the United States (US) mid-term election week after remaining under intense pressure in the last week of October. The precious metal is up 0.7% to near $3,900 after an over 3% decline last week, as oil prices have declined sharply on renewed hopes of United States (US)-Iran diplomacy.

The comments from Washington that US President Donald Trump is prioritizing diplomacy with Iran over restarting the war, indicated earlier, have eased fears of prolonged energy supply disruption.

As of writing, the WTI Oil price is down 2% to near $100 after correcting sharply from its five-month high of $104.00 posted on Friday.

US Secretary of State Marco Rubio said that Washington hasn’t made any decision to renews strikes on Tehran and that President Donald Trump prefers a diplomatic resolution. Rubio further stated that the US retains the capabilities to achieve whatever military objective Trump decides to pursue.

Over the past weeks, oil prices were consistently rising as US and Israel had signaled the resumption of joint operation on Iran after elections in their respective economies.

Theoretically, a period of correction in oil prices anchors inflation expectations. Such a scenario diminishes fears of prolonger higher interest rates by central banks. This bodes well for non-yielding assets, such as Gold.

Investors brace a high volatile week for Gold with US mid-term elections and key employment-related data, notably the Nonfarm Payrolls (NFP), on schedule.

According to analysts at ING, “a Democratic sweep is trading around 68% in prediction markets, and that could be seen as slightly negative for the US Dollar from a few angles, from higher risk of government shutdown and gridlock on debt ceiling negotiations to potential damage to already shaky AI-related sentiment.”

Technically, a lower US Dollar makes the Gold price an attractive risk-reward bet for investors. At the start of the week, the US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, trades subduedly near 101.95.

The US NFP data on Friday is expected to have a significant impact on Federal Reserve’s (Fed) monetary policy outlook. Ahead of the US NFP release, investors will focus on JOLTS Job Openings data for September and the ADP Employment Change data for October.

In the daily chart, XAU/USD trades at $3,901.58, maintaining a bearish near-term tone as spot holds decisively below the 20-period exponential moving average (EMA) at $4,073.10. The downside break under this key dynamic barrier suggests that rallies remain capped for now, while the Relative Strength Index (14) at 32.31 hovers near oversold territory, hinting that bearish pressure is strong but approaching levels where selling could start to lose momentum.

On the topside, initial resistance is the June 30 low at $3,941.76, followed by the 20-period EMA at $4,073.10, and a sustained recovery above this level would be needed to ease the current downside bias and open the way for a more meaningful rebound. Looking down, the Gold price would be exposed to $3,800 if it fails to hold the immediate support at $3,870.