Although gold prices started the week higher after former U.S. Treasury Secretary Lawrence Henry Summers announced that he was withdrawing his name from consideration for Fed Chief, the settlement was lower than opening. Yesterday's price action shows that the possibility of a reduction in Fed's quantitative easing program is weighing on the market.
Investors have been anticipating that the Federal Reserve will reduce purchases of longer-dated Treasury securities to $35 billion a month from $45 billion, while maintaining mortgage-backed securities buying at $40 billion a month. It also appears that persistent rally in equities lured some investors away from the shiny metal.
The XAU/USD pair bounced back to 1314.70 after finding support just above the 1302 level where the Ichimoku cloud sits on the daily chart. Based on the price pattern, I think the 1333/6 area (Fibonacci 38.2 based on the bullish run from 1180.21 to 1433.70) will be a cap on prices in the short-term and in order to test this barrier, the bulls have to push the pair above the 1320 resistance level. If we break through the 1333/6 zone, the pair may extend its bullish movement and revisit 1345-1353 resistance levels. To the downside, there will be support between the 1302 and 1291 levels.
A daily close below the 1291 support level could increase speculative selling pressure. If that is the case, I will look for 1283.70, 1275 and 1269.
