After failing to breach the $1338-1340 resistance area yesterday, and with declining momentum, gold drifted lower for the rest of the day closing near the lows at $1323.
This morning, gold is again on the defensive and looks likely to retest key support at 1307. A break of this level opens up a decline towards $1272, with $1292 being the only support before this level. A break of resistance at 1338-1340 would see gold move up towards the upper boundary of the down trend channel, currently at $1354.
Oil continues to exhibit weakness, as the Syrian "risk premium" has now fully unwound and a test of $100 looks likely. The weakness in the dollar is providing some support to gold. Though the inability of the yellow metal to rally in the face of such dollar softness, during the strongest month of the year historically is a concern for the bulls.
We consider the main negative factor for gold at the moment to be continued equity market strength as funds are being reallocated out of gold and into equities. And, as investors chase yields, and until equities correct in a significant way, gold will find few reasons to rally.