Gold weakened against the American dollar for a second session on Monday after two investment banks cut their forecasts for 2013 and 2014. The XAU/USD pair traded as low as 1343.40 but erased some of its recent loses as weaker-than-expected U.S. manufacturing data eased the greenback’s safe-haven appeal. Data released from Markit showed that its flash manufacturing purchasing managers’ index fell to 52.8 in September from 53.1 in August.
The pair had tried to rally last week after the Federal Open Market Committee announced the Federal Reserve will maintain its bond buying program at a monthly pace of $85 billion to achieve sustained improvement in the labor market but prices failed to gain enough momentum. It seems that investors believe the Fed is just delaying the inevitable. In the short term, I think uncertainty over the Federal Reserve's policy stance and concerns over U.S. debt ceiling will keep pressure on the American dollar. Since waiting until the last minute to come up with an agreement is a usual business in Washington, the bulls might want to take advantage of that situation.
Meanwhile, I will also pay close attention to the major stock markets. If the U.S. lawmakers continue to play their political games, market players may decide to shift their money from stocks to the gold market. Both on the daily and 4-hour chart, gold prices are inside the Ichimoku clouds and that indicates there is an intense battle going on between the bulls and bears.
From an intra-day perspective, the key levels to watch will be 1333 and 1318. It is quite possible that the pair will gain some traction if it can push through resistance at 1333. If that is the case, I think the 1345 resistance will be tested. Once the pair clears 1345, more resistance will be waiting at 1360. However, if the bears take over and prices drop below 1318, we could move back to 1305/2 zone. A daily close below the 1291 support level could increase speculative selling pressure.
