Political uncertainty was the major focus in the markets yesterday. The XAU/USD pair rose on Monday as political turmoil in Europe and weaker than expected economic data out of the United States boosted the precious metal's safe-haven appeal. Spanish Prime Minister Mariano Rajoy faces calls from opposition parties to resign over a corruption scandal and in Italy opinion polls show that former Prime Minister Silvio Berlusconi is gaining more popularity ahead of an election this month. The uncertainty in eurozone sent equities in Asia, Europe and the U.S. lower and pushed 10-year Spanish and Italian government bond yields higher. The recent price action shows that the demand for gold found extra support as investors turned to the relative safety of gold. Although we are still stuck in last week's range, I believe the pair will break out soon. As I said in yesterday's analysis, the key levels to watch are 1674 and 1660. Bullish Tenkan-sen (nine-period moving average, red line) - Kijun-sen (twenty six-day moving average, green line) crosses on the charts suggest it is probable to see the pair break higher but I am still cautious as prices are still below the Ichimoku cloud on the daily time frame.
At this point, if a bullish break out occurs, I will be looking for 1680, 1685 and 1688.80. If prices turn bearish from here, support can be found at 1666, 1662/60 and 1652. Also bear in mind that this week is heavy on economic data so expect to see some intraday volatility.
