Why the Democrats' victory in the US midterm elections is driving gold higher and what to watch next

Gold has been rallying strongly this morning as a blue sweep in the US midterm elections became a reality. As mentioned yesterday, a Democratic congress is going to restrict further tax cuts, defence spending and fiscal expansion in general. This is positive for gold because it’s going to limit the rise in Treasury yields and the US dollar on lower rate hike expectations. It could also support gold in case Trump decides to escalate the war with Iran as inflation expectations would rise alongside weakening growth outlook, creating a stagflationary environment. Looking ahead, we have the US NFP report on Friday but it’s unlikely to change much for the Fed unless we see a jump in wage growth or surprisingly weak data. The focus will likely remain on US-Iran negotiations, but at this point, it looks like both an escalation and a de-escalation would provide support gold.  GOLD TECHNICAL ANALYSIS – DAILY TIMEFRAMEOn the daily chart, we can see that gold(CFD contract) is approaching the major downward trendline. We can expect the sellers to lean on the trendline, with a defined risk above it, to target a break below the major upward trendline. The buyers, on the other hand, will want to see the price breaking higher to increase the bullish bets into the 4,700 level next, with the 4,500 level as the first target. GOLD TECHNICAL ANALYSIS – 4 HOUR TIMEFRAMEOn the 4 hour chart, we now have a minor upward trendline defining the bullish momentum. If we get a pullback, we can expect the buyers to lean on the trendline, with a defined risk below it, to keep targeting a break above the downward trendline. The sellers, on the other hand, will want to see the price breaking lower to increase the bearish bets and target a break below the major upward trendline.GOLD TECHNICAL ANALYSIS – 1 HOUR TIMEFRAMEOn the 1 hour chart, we have a minor support zone around the 3,970 level. If we get a pullback, we can expect the buyers to step in around the support, with a defined risk below it, to keep pushing into new highs. The sellers, on the other hand, will look for a break to extend the pullback into the minor upward trendline next. The red lines define the average daily range for today.UPCOMING CATALYSTSTodaywe have the US ADP and the US ISM Services PMI. Tomorrow, we get the latest US Jobless Claims figures. On Friday, we conclude the week with the US NFP report and the University of Michigan Consumer sentiment survey. This article was written by Giuseppe Dellamotta at investinglive.com.