The XAU/USD pair closed the day higher than opening as the Obama administration's opposition to Republicans' plan to balance the U.S. budget in the long term renewed fears that the lawmakers will continue play their political games and wait until the last minute. The pair traded as low as 1576.79 after the data released from the Labor Department showed that applications for jobless benefits decreased by 10K to 332K but the momentum turned bullish after one of the Republican leaders, Texas Senator John Cornyn, said “After today’s meeting, it is clear to me that balancing our budget and cutting bloated Washington spending are not President Obama’s top priorities”. It seems that the huge cliff between the Democrats and Republicans over fiscal policy will continue to cause serious problems. Politicians' inability to reduce the long-term structural budget deficit could be supportive for gold. Today is heavy on the U.S. economic data so expect some volatility. From a purely technical standpoint, I think the bulls will have an advantage while the pair is trading above 1585, which hindered the bulls' progress previously. However, in order to confirm a mid-term bullish trend, prices have to climb and hold above the Ichimoku cloud on the 4-hour time frame.
If the pair successfully breaks through 1597.77, the bulls may gain more traction and challenge the bears at the next resistance of 1604. A weekly close above 1604 would indicate that the bulls will be targeting 1613 and 1625 next. If the bears take over and start to charge, support to the downside can be found at 1585, 1580 and 1572. Breaking below 1572 would make me think that we will test the 1564 support next.
