Investing.com - Just a day remains between gold hedgers and the US midterm elections, with a volatility spike likely before the vote that determines stability or complications for the Trump administration.
Comex gold futures for December delivery settled down $1 at $1,232.30 a troy ounce, rebounding from the session low of $1,228.40. It rose some $4 before the slide.
Speculation is rife that Trump and his Republican candidates will retain control of Senate in Tuesday's election but could lose Congress to the Democrats, posing serious challenges to the president's policies and remaining term in office.
Some investors have been getting into gold as a hedge should the stock market, which had its worst rout in nearly three years in October, tumble again on a Democrats victory. While recent activity in gold has hardly reflected heightened buying, some think Tuesday's trade will break the flatline trend.
"There could be a surge in buying of short term puts as well as calls of gold and silver options ahead of the election results, by people hoping to cash in on a strong move in volatility in either direction," said Walter Pehowich, executive vice-president at Dillon Gage Metals in Addison, Texas.
"A dislocation in gold and silver volatility could occur when the news is released and could offset the premium paid on the losing side and make significant profits on the winning side. But this strategy can back back fire on the traders if the market doesn’t move at all. Worst of all, they know what their risks will be -- just the cost of their premium investments," added Pehowich.
Since Sept. 21, gold has ended each week higher, posting a cumulative 3.5% for the past five weeks.
Despite the threat of higher interest rates – with the Federal Reserve signaling this year’s fourth hike likely in December – gold has managed to stay above the $1,200 level that’s critically-important for the psyche of market bulls.
The dollar index, a contrarian bet to gold, was down 0.25% at 96.10 by 3:00 PM ET (20:00 GMT). Currency traders expect the greenback to remain flighty this week ahead of a policy statement expected from the Fed on Thursday after its monthly meeting.
The protracted US-China trade war has been another pillar of support for gold.
The Trump Administration upped the ante against China this week, warning that it could impose by early December tariffs on all remaining Chinese goods entering the US. Washington has already imposed tariffs on $250 billion worth of Chinese goods, and China has responded with retaliatory duties on $110 billion worth of U.S. imports.
Trump and China’s leader Xi Jinping are likely hold talks on the sidelines of this month-end’s G20 summit in Buenos Aires, but there is no certainty they will agree to a trade deal.
In other precious metals trading on COMEX, silver futures fell 0.9% to $14.62 a troy ounce.
Palladium rose 1.4% to $1,120.10 an ounce, while sister metal platinum traded down 1% to $867.00.
Among base metals, COMEX copper slid 1.8% to $2.753 a pound.