The XAU/USD continued to climb yesterday and closed the session higher than opening as cloudy Italian elections increased the precious metal’s safe-haven appeal. Early voting results show that more than half of Italians voted against austerity and Italian media projections indicate that no party won a majority of seats in order to form a stable government. Some market participants think that this situation may prevent the eurozone's third biggest economy from implementing necessary economic reforms and could intensify concerns over the region. In the meantime, also the U.S. budget deficit is keeping investors nervous. The Democrats and Republicans remain deadlocked over how to prevent $85 billion in mandatory spending cuts set to start on March 1st. If lawmakers fail to find a comprehensive solution in the next few days, we may find gold prices rallying. Gold is still regarded as a store of wealth and tends to gain during times of uncertainty.
For 3 days in a row, gold prices have been making higher highs and higher lows, indicating that the bulls are gaining strength since that the pair hit the 30-week low of 1555.04. On the 4-hour time frame, we have a bullish Tenkan-sen line (nine-period moving average, red line) - Kijun-sen line (twenty six-day moving average, green line) cross but the pair is still below the Ichimoku cloud.
Today the key levels to watch will be 1597.77 and 1587. The bulls will need to push the pair above the 1597.77 in order to test the next barrier which happens to be at the 1604 level. Beyond 1604, I expect to see some resistance at 1609 and 1617.85. To the downside, the first important support can be found at 1587. If the bears take over and prices drop below that level, look for 1580, 1575 and 1569.70. I think today’s main driver will be Fed Chairman Bernanke’s semiannual testimony on monetary policy and the price action in the USD/JPY pair.
