The XAU/USD pair started the first trading day of 2014 higher as the bulls managed to break through the 1213 resistance level. The pair traded as high as 1230.73 before pulling back to the 1222 level which is the top of the Ichimoku cloud on the 4-hour chart. In my previous analysis, I had said that the short-term charts were turning bullish and yesterday's price action suggests that higher prices will come as long as the pair trades above the cloud (i.e the 1205 support level).
I think if the pair climbs above the 1225 resistance level today, the bulls might have a chance to reach the first critical barrier at 1237. Since gold prices found both support and resistance around the 1237 level several times in the past, it is very likely that we will see some profit taking at that point. Closing above this strategic point would make me think that the bulls will try to march towards the 1268 - 1287 zone.
Although gold has room to bounce, larger trend points lower. Because of that I believe this area will be a real challenge for the bulls as the top of the descending channel and the Ichimoku cloud coincide at that level. To the downside, there is an interim support between the 1218 and 1213 level. If gold prices break below 1213, the market will probably test the next support at 1205. In the meantime, I will also keep an eye on the USD/JPY pair and U.S shares because a strong correction in these markets might prompt funds to get back into gold.
