Gold prices settled slightly higher last week but the 1486 level continues to be hurdle for the bulls. This level had been a strong support level back in 2011, right before the precious metal started a rally to 1920. The bulls tried to penetrate this 1486 barrier on Friday but surprisingly strong April jobs report helped the bears to win the battle.
Data released by the Labor Department showed that non-farm payrolls expanded by 165K last month and the unemployment rate dropped to 7.5% from 7.6%. Last week, the Federal Open Market Committee had announced that “The committee is prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labor market or inflation changes”. That means if hiring continues to rise substantially, the Federal Reserve may slow or stop buying bonds sooner than expected. This would be bearish for gold market but we are still too far from reaching the Fed's target of 6.5% unemployment.
In the short-term, I believe that physical gold demand in Asia and the rate cut by the European Central Bank might be supportive for gold prices. However, I will be sticking to the charts as always. The XAU/USD pair is trading just above the Ichimoku cloud on the 4-hour time frame. In addition, the Tenkan-sen (nine-period moving average, red line) is above the Kijun-sen (twenty six-day moving average, green line). On the other hand the daily and weekly charts are working against a bullish scenario. Because of that, I think the bulls will encounter heavy resistance in the 1532 - 1550 zone. Of course, in order to test that area, the bulls have to gain enough strength to climb above the 1486 first. Just above this level, there will be some resistance at 1498 and 1505. To the downside, I expect to see support between 1455.85 and 1444. If we break below 1444, support will probably be seen at 1430 and 1411 before hitting 1398.