The XAU/USD pair closed the session slightly lower than opening but remained within the last three days trading range. While the dollar has been suffering due to the U.S. government shutdown and congressional dispute over the debt ceiling, many investors believe that Democrats and Republicans can find a compromise before the October 17 deadline when the Congress must decide whether to raise the government's borrowing limit or face the risk of a catastrophic debt default.
According to the Congressional Budget Office, although the federal government will run out of borrowing authority on October 17, the country will probably be able to meet its financial obligations until the end of the month. Other than the U.S. budget battle, market participants will be keeping an eye on minutes of the Federal Reserve's September 17-18 meeting, when the Federal Open Market Committee members had decided against reducing asset purchases from the current $85 billion monthly pace.
Technically speaking, the daily and weekly charts show that overall outlook of the market is weak. I think the bulls' failure to take advantage of weakening USD confirms that investors' confidence in gold has been diminishing since we broke below the 1532 support level which had been the bottom for a pretty long time. Because of that, I expect gold prices to remain in a massive consolidation zone between 1484 and 1150 for several weeks, unless the world's largest economy defaults.
From an intra-day perspective, I think the 1326/33 resistance zone which intersects with the descending trend line will be important for short-term direction. If gold prices climb above this barrier, it is technically possible to see a bullish continuation targeting the 1360, 1374 and 1380 levels. If the bears increase the downward pressure and drag prices below the 1302 - 1306 area, the pair may gain enough momentum to test 1291. Below that, the most important challenge will be waiting the sellers at 1275.
