Gold declined for the first time in five sessions as the bulls failed to overcome the resistance at the 1286 level which coincides with a descending trend-line dating back to mid-April. The XAU/USD pair initially traded as high as $1284.80 an ounce but gave up some of its previous gains after better than estimated U.S. data triggered profit taking. Data released by the Federal Reserve showed that industrial production rose 0.6% in May after a revised 0.3% drop in April and the National Association of Home Builders reported that its housing market index climbed four points. A separate report from the New York Fed revealed that manufacturing activity in the region climbed to 19.3 from 19 a month earlier.
Recently concerns over escalating violence in Iraq and increasing demand for protection against volatility in the stock markets have been driving this market’s bullish activity but yesterday’s shooting star indicates that the XAU/USD pair encountered a strong resistance. That means Iraq situation is already priced in. Unless we don’t hear about a military action from the U.S against militants, the market’s focus will probably turn back to the U.S. economy and Federal Open Market Committee’s two-day policy meeting which kicks off today.
From a technical point of view, unless the bulls break through 1286/8, prices won’t have much room to go. If the bulls climb above this area, that could bring more buyers in and then we could see a test of the 1297/8 level where the bottom of the Ichimoku cloud (daily chart) currently reside. However, if the bears manage to defend their first camp at 1277 and drag prices below the 1268 support level, it is likely that we will see the pair testing the next support level at 1262. The bears will need to capture that level in order to challenge to the bulls at 1256.
