The XAU/USD pair fell for the week as the American dollar gained strength across the board. Technical selling pressure had increased drastically after the pair broker below 1625, the bottom of the Ichimoku cloud on the weekly time frame. The 1625 level which also capped prices during the last summer was an important level for many technical analysts.
As a result gold prices continued to fall sharply and also broke below the bottom line of the descending channel that the pair has been running in since October 2012. In addition to the extremely bearish technical picture, concerns that the Federal Reserve will adjust the pace of monthly asset purchases supplied enough powers for the bears to tackle the July 2012 low of 1555. For the third consecutive week, speculative traders on the Chicago Mercantile Exchange (CME) have reduced their net long positions, data released by the Commodity Futures Trading Commission (CFTC) showed on Friday, reinforcing expectations the pair is setting up to sink deeper. The pattern on the daily chart suggests that the XAU/USD pair will see some consolidation roughly between 1605 and 1555. To the upside, there will be resistance at 1587, 1597.77 and 1604. If the bulls fail to push prices above 1604, it is very likely that the pair will revisit the 1555 support. From an intra-day perspective, support to the downside can be found at 1570 and 1563.60. A break below 1555 would indicate that the bears won't give up before we hit the bottom of a massive consolidation area which happens to be at 1530/25.
If this support zone gives way, this could be the beginning of a much more serious sell-off. This week, the spotlights will be on Fed Chairman Bernanke once again. Gold market participants will be looking for a clarification of the latest FOMC meeting minutes when he testifies before congressional committees on Tuesday and Wednesday.