Markets are keeping an eye on the midterm elections next Tuesday with polls showing that Republicans may gain control of Congress. Traditionally, gold has performed better during periods of Democratic power as they have traditionally been less fiscally conservative than their Republican rivals. However, in recent history, Republicans under George Bush spent money in a manner that would make a drunken sailor proud. The fiscal challenges facing the US are of a magnitude that no matter which party comes out on top in next week's midterm elections, gold is likely to remain robust for the foreseeable future. Indeed, it is hard to see how gold could fall significantly as long as interest rates remain near zero and fiscal and monetary policy remains extremely expansionary.

Gold closed last week at $1,328.55/oz and so is marginally higher on the week. Gold's close today will be important and a higher weekly close will negate the negative short term technical picture generated by last week's lower weekly close.

Gold in Euros - 90 Day (Daily).

While gold fell last week, gold is set to close October some 2% higher (2% in dollars, 0.8% in euros and 1% in British pounds) which means that the medium and long term technical situation remains positive. Gold has consolidated in October after the very sharp gains seen in September.

While stock markets are also set to finish October positively, Treasuries are set for their first monthly decline since March due to increasing concerns about QE2 and the real risks it poses to the dollar and bonds and the growing risk of inflation and stagflation.