Gold rose more than 3% on Wednesday and pushed back above $4,000 an ounce, its biggest one-day gain in more than two months, as the U.S. dollar fell to its weakest level in more than a month after Tuesday's U.S. midterm elections.

Spot gold traded at about $4,061 late Wednesday afternoon in New York, up roughly $130, or 3.3%, on the day, according to Trading Economics. That leaves the metal about 5% above the one-year low of $3,870 it touched on Oct. 30, but still some 28% below January's record of $5,608.35.

For Asia, the rebound lands at the start of the region's busiest buying season. Diwali falls in early November, and demand in India and China usually picks up in the fourth quarter with festivals, weddings and retailer restocking. A weaker dollar also lowers the cost of bullion for buyers paying in rupees, yuan and other currencies.

Dollar slide lifts gold and the rest of the metals

The dollar dropped and Treasury yields fell across the curve as investors digested the election results, Trading Economics reported. Lower yields reduce the cost of holding bullion, which pays no interest.

The rally held up through a run of firm U.S. data. Payroll processor ADP said private employers added 86,000 jobs in October, short of September's 90,000 but well above the 67,000 economists had forecast, Kitco News reported. Spot gold was at $4,037.70 shortly after that release. The Institute for Supply Management's services index came in at 54.5 for October, slightly below the 54.8 expected, and gold traded at $4,032.70 after the data.

Rate risk has not gone away. Traders priced a 79% probability that the Federal Reserve raises rates in December, according to the CME FedWatch tool cited by Trading Economics, after the central bank left rates unchanged in October. Artem Bakushev, head of risk at Monaxa, said the strong ADP numbers left the Fed room to tighten, which would support the dollar and weigh on bullion, Kitco reported.

The other precious metals moved further. Silver gained about 4.9% to $52.24 an ounce, though it remains down about 14% over the past month and less than half its January record of $121.64, Trading Economics data showed. Platinum rose about 4.9% to roughly $1,500 and palladium jumped about 7.7% to $1,005, both rebounding from their lowest levels in more than a year, according to Trading Economics.

A bounce after gold's worst October since 2008

Wednesday's gain follows a rough month. Gold lost nearly 7% in October, its worst October since 2008, and sank to a one-year low on Oct. 30 as a technology stock sell-off and bets on further Fed hikes drove selling, Kitco reported.

Carsten Fritsch, commodity analyst at Commerzbank, said in his latest commentary that the slide had gone too far. “We consider the price decline in gold to be excessive and unwarranted,” he wrote, according to Kitco. He attributed much of the selling to investors raising cash to cover losses and margin calls in equities, and pointed to a U.S. budget deficit above 6% of gross domestic product. He said meaningful fiscal consolidation looks unlikely regardless of the midterm outcome. Commerzbank still expects the Fed to raise rates in December after its first hike in September.

Chart watchers are less sure. Michele Schneider, chief market strategist at MarketGauge, told Kitco she sees $3,940 an ounce as the key support level and warned that a sustained break below it could send prices toward $3,500. “The flight to safety in gold has been broken,” she said.

India pulls back while Chinese investors keep buying

Fresh data from the World Gold Council show how high prices have split demand in Asia's two largest markets. In its quarterly Gold Demand Trends report on Tuesday, the industry group said global demand, including over-the-counter investment, slipped 1% from a year earlier to 1,369 metric tons in the third quarter. Central banks bought 321 tons, up 42% and well above their recent quarterly pace, with China's central bank reporting purchases of 63 tons, Kitco reported.

India is the weak spot. Sachin Jain, chief executive of the council's Indian operations, told Reuters that Indian demand fell 29% to 162.5 tons in the September quarter, with jewelry purchases down 20% and investment down 40%. He expects full-year demand of about 650 tons, the lowest since 2020. The council said the domestic gold price averaged about 45% more in the quarter than a year earlier, and Reuters reported that the weakest monsoon in more than a decade has squeezed farm incomes in rural areas, which account for more than half of Indian gold demand.

China held up better on the investment side. Chinese bar and coin demand rose 7% to 79 tons in the quarter, and China and Egypt were the only major markets where it grew. Chinese jewelry consumption fell 22% to 66 tons, the weakest third quarter since 2006, which the council attributed to high prices, a value-added tax burden on jewelry and a weak property market.

Exchange-traded funds drew fresh money after second-quarter outflows. Global gold ETFs took in 211 tons in the quarter, lifting holdings to a record 4,256 tons, and Asian-listed funds added 34 tons, their third straight quarter of inflows, led by China. Indian funds added 6 tons, though the council said mutual funds in India stopped taking new money into gold fund-of-funds products in mid-October, a step that could slow future inflows.

The next test for gold's rebound is the U.S. nonfarm payrolls report due Friday, Nov. 6. In Asia, Diwali buying in early November will be the first read on whether prices about $1,500 below January's peak can bring Indian shoppers back.