Gold Under Pressure After Failed Breakout

The price of gold has come under pressure after a failed attempt to rally above trend channel resistance late last week.

Gold Daily Chart

A rally on Friday has likely trapped some bulls as the price of gold briefly traded above the important $1500 price point as well as some resistance which I suspect is well watched.

This resistance from the upper bound of a trend channel that has encompassed price action since early September. Further, the 50-day moving average fell near channel resistance to create a confluence.

Friday’s rally and subsequent sell off led to a single reversal candle print. Yesterday’s decline made it an even stronger reversal signal when looking at candlestick patterns.

Brexit Developments Remain on the Radar

While there is much uncertainty on how Brexit will proceed from here, today’s vote in UK parliament should be an important one.

UK Prime Minister Boris Johnson will have a third go at calling for an early election. This time, he could be successful.

Prospects of the UK finally leaving the EU has caused optimism in the markets, but this will likely get wiped out if an early election gets voted through. In such a scenario, Brexit is likely to get pushed back to January, at the very least. I suspect gold prices would catch a bid in such a scenario.

Equity Markets Rally to All-Time Highs

Putting pressure on Gold prices is a rally to all-time highs in US equities on Monday. The S&P 500 extended gains for a second consecutive session to break to record highs as investors appear less concerned over a recession as a result of a string of positive earnings reports.

In the pre-market, S&P 500 futures are trading slightly lower on Tuesday.

Gold has retreated back towards a fairly important support level at $1486. I think the price action from here will largely depend on the UK election result. A break of support could see the shiny metal extending losses, potentially to around the $1440 area.

On the other hand, a recovery from here would target another test of the upper bound of the mentioned trend channel.