Gold edged slightly higher on Tuesday as a retreat in the U.S. dollar helped lure buyers back into the market after the previous session's 1.65% slide. The XAU/USD pair tried to break below the 1258.60 level but the bulls managed to defend their grounds, as a result prices headed back to the 1272/69 area as expected. Although a softer dollar encourages investors, a rise in equities -bolstered by a rebound in oil prices- limits the metal's upside potential.
Meanwhile, the short-term and long-term charts are giving us mixed signals. On the weekly and daily time frames, prices are above the Ichimoku cloud and supported by positively aligned Tenkan-Sen (nine-period moving average, red line) and Kijun-Sen (twenty six-period moving average, green line) lines. On the 4-hour chart, however, XAU/USD is trading within the borders of the Ichimoku cloud and we have a bearish Tenkan-Sen/ Kijun-Sen cross. Technically, the Ichimoku cloud indicates an area of resistance (or support depending on its location), so basically the trend is up when prices are above the cloud, down when prices are below the cloud and flat when they are in the cloud itself.
The XAU/USD pair has to push its way through the 1272 level in order to gain more traction and tackle the next barriers at 1277.30 and 1280. If the market can cleanly break above the 1280 level, we could see a bullish run targeting the top of the 4-hourly cloud and possibly 1287 level. The bears will have to push the market back below the bottom of the 4-hourly cloud if they intend to pay another visit to 1263 and 1258.60. Closing below the 1258.60 would suggest that the market is on its way to the 1246/3 area where a short-term bullish trend line and the top of the daily Ichimoku cloud converge.
