Gold settled at $1287.95 an ounce on Friday, as investors decided to take some of profit off the table prior to the release of the Federal Open Market Committee meeting minutes. The Federal Reserve will release minutes from its October 29-30 policy meeting on Wednesday.
In economic news on Friday, the Federal Reserve Bank of New York’s business conditions index came in at -2.2, down from the previous month's 1.5 and below expectations for a reading of 5.2. Another report released by the Fed showed that industrial production fell 0.1% in October. The market players think that the world's biggest economy is still far from full health and Federal Open Market Committee members are not confident enough to scale down aggressive asset purchases in the near future. I think the inevitable political bickering that will arise ahead of the January-February debt and budget deadlines is another source of their concerns.
Although this sounds supportive for gold, low inflation expectations worldwide and heightened appetite for more conventional assets, such as stocks, have been eroding demand for a haven. From a technical point of view, the overall trend will remain bearish while the XAU/USD pair trades below the Ichimoku cloud almost on the weekly and daily time frames. Also the price pattern on the charts suggests that rebounds are weakening.
However, there is another fact that we haven't seen a daily close below the 1261 level since early July and if this support remains intact, I can't rule out a short term reversal. The key level to the upside is located at 1293. If the bulls break above this level, it is likely that the pair will test the 1303/6 area which acted as both support and resistance in the past. Since the bottom of the Ichimoku cloud currently resides in that area, I expect any rallies to struggle at that point. Only a sustained break above the 1306 could extend the bullish movement towards 1326. If the bears take the reins and pull prices below the 1277 level, we might head back to the 1268 - 1261 zone.
