The XAU/USD pair ended the week higher as the American dollar encountered some selling pressure after Federal Reserve President Ben Bernanke signaled the central bank may not be as close to scaling back its monthly asset purchases as investors had imagined. It is very clear that Fed officials want to slow down the quantitative easing program but they also want to avoid creating a cataclysm in the financial markets. Because of that, the Greenback may continue to be soft in the short term and provide support for gold. Technically speaking, 4-hour chart suggests that (if prices make a sustained break above the 1300 resistance level) there is still some room for the pair to run higher, possibly up to 1320 - 1354 area. However, as Bernanke reiterated, Fed’s next moves depend on U.S. economic indicators and if the incoming data are broadly consistent with its forecasts, the central bank will adjust the pace of its massive stimulus measures eventually. There are other important elements which could limit gold’s potential upside such as fading concerns about inflation, sharp rises in the major stock markets and weakening demand for physical gold. Friday's data from the Commodity Futures Trading Commission (CFTC) show that speculative investors reduced their net-long position in gold to 16557 contracts, from 20751 a week earlier. If prices turn south and breaks below the 1266 support level, we might be heading back to the 1248 level where the top of the Ichimoku cloud (on the 4-hour time frame) and the bottom of the ascending channel converge. Below that level there is additional support at 1222. A daily close below that means the bears are strong enough to tackle the 1200 level.
