The XAU/USD pair has been consolidating in a relatively tight range since Monday. It appears that gold prices established a support level at 1306 and a resistance at 1323 as market players took a cautious stance ahead of the third-quarter gross domestic product data and monthly non-farm payrolls report. Although growing acceptance by the market that the Fed is going to scale back its massive stimulus measures eventually is weighing on gold prices, the process depends on the evolution of the economy.
I expect the Federal Reserve to postpone tapering until its January 28-29 meeting at least because the battle between Republicans and Democrats over the budget and spending cuts is not over yet. Since the last minute agreement -that U.S. policy makers reached- funds the federal government until January 15 and raises the debt limit through to February 7, we will probably see the same drama in Washington early next year. While gloomy data out of the U.S. helps the shiny metal, fading concerns about inflation and sharp rises in the major stock markets could limit gold’s potential upside.
From a technical perspective, the weekly and daily charts remain bearish as the pair trades below the Ichimoku cloud. Because of that, there will be significant resistance levels ahead and breaking through these barriers may not be so easy. However, in the near-term, I will be paying attention to the 1326 and 1306 levels as I think that the price action will be limited until we manage to leave this area completely.
If the American dollar takes a hit from the upcoming fundamentals and we close above 1326, I think the bulls might have another chance to test 1335.92 and 1345 resistance levels. If the bears increase the downward pressure and drag gold prices below 1306, I think we will be heading back to the 1293 level. Below that, expect to see some support at 1282 and 1277.
