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The gold market is sharply higher at midday Tuesday as a combination of factors drive buying in the metal. The market is seeing some benefit from short-covering, bargain hunting, and risk aversion as the crypto markets are sold off today. One crypto exchange has reportedly halted withdrawals today, and that has spooked investors into buying gold and silver today as tensions rise. According to the World Gold Council, gold has risen more than half the time over six months following the midterm elections. This time may prove to be no different, especially if the Fed does decide to reverse course on rate hikes in the months ahead.

Today is midterm election day in the U.S. The majority of people seem to believe the Democrats will lose the House and possibly the Senate as well. Any Republican victory today may make it harder for policies to be enacted in the next two years, effectively creating a sort of policy gridlock. Such a scenario could potentially boost the gold market as it may drive investors into its perceived safety. The unknown election results may also be lending gold some support today.

In other news, the Covid-19 virus remains a huge factor in global growth. China just reported 7500 new cases of the virus yesterday, and fears of additional lockdowns are on the rise. As the globe’s second-largest economy, any lockdowns in China can potentially crimp or even halt the production of many products. This lower production can slow the global economy tremendously, possibly even putting it into a recession.

Global markets will also continue to pay close attention to rising interest rates. In the U.S., higher yields and a stronger dollar have both been major roadblocks to higher gold. These may remain elevated as long as the Fed keeps its foot on the gas. If the Fed takes a pause or starts easing rates in early 2023, however, the dollar and treasury yields may both deflate quickly, possibly paving the way for sharply higher gold prices.

After spending many weeks in a range between the $1600 and $1700 levels, gold has finally broken out to the upside. This could mean that follow-through buying may be seen in the days ahead and that the market may now begin to trend higher instead of lower. Today’s breakout could be the beginning stage of a sustained move higher in gold. The bulls will need to keep buying, however, as the market may remain vulnerable to a rapid pullback based on election results and other factors.

The gold market may take a slope and steady approach to higher ground as the year comes to a close. The Fed will almost certainly hike again in December, although the hike could be smaller than 75-basis points. This week’s CPI reading due for release on Thursday may set the stage for the Fed and determine how much it hikes next month or even beyond.