The XAU/USD pair extended its gains yesterday and hit the highest level since December 12. Disappointing data of late, especially Friday's numbers showing weak recovery in the labor sector, raised doubts about how quickly the Federal Reserve would wind down its quantitative easing program. Although gold prices are supported by weakening dollar, as you can see, the pair is trading just below the Ichimoku clouds on the daily time frame.
The Ichimoku clouds which indicate an area of support or resistance (and in our case they are representing resistance zones) currently reside between the 1256.43 and 1286.70. The thickness of the Ichimoku cloud is important because the thicker the cloud, the less likely it is that prices will manage a sustained break through it. The thinner the Ichimoku cloud, a break through has a better chance. In other words, unless the bulls push the XAU/USD pair above the top of the descending channel and break through 1262 today, prices won't have much room to go.
Only a sustained break above 1268 could give the bulls enough power to challenge the 1286 hurdle. If the bulls run out of gas and prices reverse, we will probably see support between 1242 and 1237. The bears will need to drag the pair below the 1237 level in order to march towards the 1225 level. Since the key to the U.S. economy is consumers, market participants will pay close attention to retail sales data due later today.
