Gold prices dropped $14.10 an ounce yesterday, erasing most of the gains made last week, as investors abandoned safe havens and flocked to equities on signs of progress in negotiations over Greece's bailout program. Although no deal has been struck, Greece's new offer on a reform package to avoid defaulting on payments due at the end of month raised hopes that an accord could be reached. In the latest economic data, U.S. existing home sales jumped 5.1% in May but the gold market had a muted reaction.
The XAU/USD pair, which accelerated its descent after the 1198 support level was broken, pulled back to the Ichimoku cloud on the 4-hour time frame. This area has produced a bit of a bounce so far and therefore I will keep an eye on there. To the upside, the initial resistance level stands at 1192/0 where the Tenkan-Sen (nine-period moving average, red line) and Kijun-Sen (twenty six-day moving average, green line) lines converge. The market will need to pass through this region in order to retest the 1202 - 1198 resistance.
On the other hand, if XAU/USD fails to climb back above 1192/0 and drops through 1183/1 support, then the 1777/5 area will become the next target for the bears to capture. A break below 1175 would indicate that we will see prices visiting the critical support in the 1168/6 region. Once the market shatters this support, I think we are likely to proceed to 1147, a logical area at which a bullish reversal might occur.
