Gold stays poised for a breakout, will the end of stimulus talks be the trigger?

Technical Analysis

Author: Justin Low | gold

Gold continues to coil up ahead of what could be the final pre-election stimulus showdown in the US

Gold D1 20-10
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Gold is pretty much forming a narrowing wedge at this point as we get into what hopefully will be the end of the pre-election stimulus showdown in the US.

Over the weekend, Pelosi gave a 48-hour window for any deal to be struck and we will get to the end of that by today. That said, politicians and deadlines never go well together so one can expect the line in the sand to continue shifting in the days ahead.

But as seen yesterday, any negative headlines still have the potential to drag risk assets lower and light a fire under the dollar. And that is a risk for gold as well as such.

Adding to that is the narrative of stimulus bolstering the 'reflation trade'. Hence, any setback to stimulus talks could also act as a counter-argument for gold in that sense.

While the short-term indication is quite clear i.e. no pre-election stimulus coming, it remains to be seen how much of a setback that will have on risk assets and in the case of gold prices, how much emphasis that will have on dollar strength and the 'reflation trade'.

If the market quickly switches focus towards the election instead, odds of a 'blue sweep' may help to limit any potentially major setback from stimulus talks this week.

But that might not rule out some short-term pain beforehand, and who is to say that the Democrats will hold the keys to the Senate at the end of it all.

In short, headline risks remain a major factor in the next two weeks and also the election focus i.e. opinion polls and odds of a smooth/chaotic aftermath.

Back to gold, the technical picture suggests that a breakout is imminent - one way or another. But the pressure to the downside may be more overwhelming, especially if price breaks the 100-day MA (red line) - now @ $1,875 - on the way down.

There will be further support closer to the late September lows around $1,848-52 but if that gives way, a squeeze to the downside could be a painful one for gold buyers.

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