The XAU/USD pair closed the session slightly higher than opening but remained within the last 3 days trading range. Gold prices gained some ground against the greenback after a series of weaker than expected economic data out of the United States increased investors' appetite for the shiny metal. According to data released by the University of Michigan consumer sentiment index slipped to 71.8 from 77.6 and the New York Federal Reserve Bank said the Empire State manufacturing index dropped to 9.2 from 10. Recent price action indicates that market players are cautious ahead of the Federal Open Market Committee policy meeting. Of course headlines regarding the U.S. budget negotiations will also be in focus through out the week. Although the minutes of the Federal Reserve's last meeting showed growing debate within the committee about scaling back the current bond buying program, Chairman Ben Bernanke and Vice Chairman Janet Yellen see continuation of quantitative easing is necessary for a stronger economic recovery. On the 4-hour time frame, the XAU/USD pair trades above the Ichimoku cloud but the 1598 level has been a cap on prices recently.
If the bulls shatter this barrier and get a close above the resistance zone of 1604, the most probable scenario is that we see prices testing the 1613 and then 1625 levels eventually. To the downside, support will probably be seen at 1585, 1580 and 1572. If we break and close below 1572, I think the sentiment will turn bearish once again. In that case, a re-test of 1555 won't be out of question.
