A Week of Changing Hands. Who holds the keys now?

Last week, we said Washington might decide what gold does next. It did, though it had help. On Friday, gold fell to its lowest level in a year. By Wednesday, it was back above $4,000, and comfortably so.

In between, oil lurched as talks to end the war with Iran rose and fell, and the Fed kept a December rate rise firmly on the table. But two stories did most of the moving. One was the largest crypto theft on record. The other was an election that handed both houses of Congress to the Democrats.

One is about passwords, the other about votes. Both raise the same question: who actually holds the keys?

No password required

On Thursday 29th October, hackers took around $6.3 billion in cryptocurrency from Binance, the world's largest crypto exchange. It started with a fake job interview, and ended with the attackers turning the company's own AI tools against it. The FBI has blamed North Korea. Binance says its customers will be covered for their losses.

For gold, the timing was unkind. The theft landed while markets were still digesting the Fed, and the dollar was firming. Some investors sold what they could, gold included, to raise cash while their crypto was in question. The Fed did most of the damage. The hack added to it.

It's also a quiet reminder of what makes physical gold different. A bar or a coin has no password to steal. It can't be hacked or phished, and its value doesn't depend on anyone's code. It simply sits there, being gold.

A last-minute pledge

As Americans went to the polls on Tuesday, President Trump made an announcement of his own. He told Fox News that the US would stop giving Israel around $4 billion a year in military aid by the end of this year. "They don't need it," he said. Arms sales would carry on.

It may not be that simple. The current aid agreement runs until 2028, and it's Congress, not the President, that holds the chequebook. The Atlantic Council expects any wind-down to take much of next year. Officials in Israel's own Finance Ministry were reportedly caught by surprise, and the country's opposition leader called for the Prime Minister to be replaced.

Was it a bid for votes? The President didn't hide the link. He called the aid a "bad talking point" for Republicans, and pointed to a Democratic Senate candidate in Michigan who had campaigned against it. One poll last month found most Americans now want military aid to Israel reduced or ended. Critics called the timing a "November surprise". Even some Republicans doubted it would change a single vote. Whatever the intention, it didn't stop the Democrats' sweep.

For gold, the bigger point is the Middle East. Any shift in America's support for Israel, with the war with Iran still running, adds another unknown to a region that already moves the oil price. And oil, as regular readers will know, moves gold. That question now lands on the desk of a Democratic Congress.

A blue wave in Washington

By Wednesday morning, the Democrats were projected to have taken both the House and the Senate. It's only the fifth time since the Second World War that a party has flipped both in a midterm. Exit polls had the President on course for the lowest approval rating of any president at a midterm, and the result was widely read as a verdict on him.

Gold noticed straight away, climbing more than 2% and settling well above $4,000. The dollar slipped to its lowest level since September. Investors moved into US government bonds, and yields fell. Shares dipped, led by the AI companies, on fears that Democrats would slow the race to build data centres.

The mechanism is a familiar one. A weaker dollar makes gold cheaper for anyone buying in other currencies. Lower yields mean that holding gold, which pays no interest, costs a little less in income given up. On Wednesday, both moved gold's way at once.

We've seen this before. When the 2018 midterms split Congress, the dollar weakened and gold rose in the days that followed.

What a Democratic Congress could mean

Not much, for now. The new Congress doesn't sit until January, which leaves the President two months with the current one. After that, Democrats hold the purse strings. Every budget and spending bill has to pass through them.

The first big test is likely to be the debt ceiling, the legal cap on US government borrowing, which needs raising again next year. Divided government has a habit of turning that into a stand-off, with the risk of shutdowns. The President keeps his veto, and most of his power over tariffs and foreign policy. Undoing his tariffs, or ending the war with Iran, would still need Republican votes. So expect more gridlock than U-turns.

Pepperstone's Chris Weston thinks the size of the majority may matter more than the win itself. The bigger it is, the more it can hold back the President's plans at home.

Democrats also gain the power to investigate. They've promised tougher scrutiny of AI and the data-centre boom, and in one recent poll only one American in three was happy with its pace. They're also reported to be preparing to look into the President's family's ties to the crypto industry. This week's two stories may not stay separate for long.

Some analysts think a slower data-centre boom could cool the economy enough for the Fed to hold off on rate rises. That would suit gold, which has spent the autumn up against rising rates.

What neither party has is a convincing plan for America's debt. As Jen Bawden of Bawden Capital put it, gold is "a hedge against the risk that policymakers respond to mounting debt with easy money". That was true before Tuesday. It's still true now.

Not everyone is convinced

Not every analyst sees a gold story here. Some point out that this week the rush for safety went into bonds, not gold. Others doubt America's finances will change enough to matter either way. Gold is back above $4,000. Staying there is the next test.

History is kinder. Kitco's research shows gold has risen by an average of 14% in the year after each of the last 13 midterms. Past performance is no guide. But elections tend to matter more over a year than over a morning.

Further from the summit than it looks

It's easy to forget where gold has come from. In January, it set a record of $5,595. Even after this week's bounce, it sits well below that. It's a reminder that gold can be as bumpy as anything else in the short run. Its case has always been made over years, not weeks.

This autumn, rising rates and a firm dollar have been the headwinds. Debt, deficits and central bank buying remain the tailwinds. A change in Congress doesn't settle that tug of war. It does tilt it a little.

The week ahead

On Thursday, the Bank of England's interest rate decision. Friday, the US jobs report, the last big piece of data before the Fed's December meeting. Markets still see a rise as more likely than not.

A weak number would strengthen the case against a rise, and could push the dollar and yields lower still. That would help gold. A strong one could undo much of this week's move.

Oil remains the wildcard. Talks to end the war with Iran continue, even as US forces struck Iranian positions near the Strait of Hormuz on Monday. Every swing in crude feeds the inflation debate, and from there, the gold price.

Control of Congress changed hands this week. So did $6 billion of crypto. The gold stayed exactly where its owners left it.