Gold prices (XAU/USD) settled higher Tuesday, as weakness in the U.S. dollar helped prices regain their footing following losses last week. The XAU/USD pair traded as high as 1619.98 after finding strong support at the 1587 area. Fed Chairman Ben Bernanke’s comments were the main driver of the precious metal's performance. He said "We do not see the potential costs of the increased risk- taking in some financial markets as outweighing the benefits of promoting a stronger economic recovery", signaling that he backed continuation of the $85 billion asset-buying program. His words eased worries that the Fed will scale back quantitative easing earlier than expected and increased the shiny metal’s safe-haven appeal. Today he will give his testimony to the House Financial Services Committee. In the meantime, investors' focus will remain on whether U.S. lawmakers will unravel the budget issues. If politicians fail to avoid sharp spending cuts set to go into effect on Friday, the consequences could be devastating, especially for the labor market.
From a technical point of view, I think gold prices will be consolidating roughly between the 1618 and 1604 (or even 1598) in the short term. Last week the pair had spent two days in this zone. Also note that this is the area where Ichimoku clouds reside on the 4-hour time frame, therefore it is possible to see more resistance. If the bears increase selling pressure at this point, look for support at 1604, 1597.77 and 1587.
To the upside, I see the first important resistance at 1625.64 which coincides with the Kijun-Sen line (twenty six-day moving average, green line) on the daily chart. If the bulls break through, I think they will have enough power to tackle the 1640.50 resistance level.
