The XAU/USD pair fell to its lowest level in two days as the bulls continued to encounter heavy selling pressure at the 1300 level. Although the pair traded as high as 1300.55 after the Federal Reserve Chairman Ben Bernakne said “If the data are stronger than we expect, we’ll move more quickly. If data don’t meet the kinds of expectations we have about where the economy’s going, then we would delay that process or potentially increase purchases for a time” in his testimony to the House Financial Services Committee, prices moved towards the 1266 area which has been acting as a bottom for the last four days. The price action on the charts shows that Chairman Bernanke's words were not strong enough to lure the buyers back to the market. In fact, this is not surprising because he just confirmed that the pace of bond purchases would be adjusted up or down depending on the economic conditions. Yesterday the Fed’s Beige Book said “Residential real estate and construction activity increased at a moderate to strong pace in all reporting districts. Manufacturing expanded in most districts since the previous report”. Therefore, the recent improvements make it more likely that the Federal Reserve will move towards slowing the rate of quantitative easing rather than keeping it steady or increasing it. In the long term, the bigger picture is favoring the bears because gold prices are still sailing under the Ichimoku clouds on both the daily and weekly time frame. From an intra-day perspective, I still believe that the key levels to watch will be 1300 and 1266. If the bulls gain some traction and finally break through the 1300 resistance level, there will be hurdles in the way such as 1320 and 1354. If the bears continue to push downward and prices drop below 1266, support can be found at 1253 and 1248. A daily close below this level would make me think that the bears are targeting the 1222 level at least.
