The XAU/USD pair closed yesterday's session lower after three consecutive days of gains as the Ichimoku cloud on the 4-hour time frame continued to offer some resistance. The pair accelerated its decline after breaking below the 1205 support level and traded as low as 1195.07. Expectations the U.S. economy will improve, coupled with growing acceptance by the market that the Federal Reserve will be able to shrink (and end) its ongoing asset buying program in 2014, have been weighing on the precious metal for a pretty long time. It appears that desire to buy gold as a hedge against the consequences of monetary policy has diminished.
Looking at the charts from a purely technical point of view, I think yesterday's candle which engulfed the previous three candles confirm that we have more pressure from the bears than the bulls. Currently, the pair is just sitting just above the 1195 support level but I don't have a reason to buy gold until the prices hold above the Ichimoku clouds on the 4-hour chart. If that happens, I might join the bulls for a ride back to the 1237 - 1251 area. For now, the 1268 level -where the bottom of the Ichimoku cloud (on the daily time frame) and the top of the descending channel converge- looks resistive so I believe we will witness heavy selling pressure if prices climb that high.
To the downside, the bears will have to drag the XAU/USD pair below the 1195 level to increase pressure. If that support gives way, it is possible to see a bearish continuation to the next key support level of 1180. Since today's economic calendar is light, the USD/JPY pair and major equity markets will be on my radar. Also bear in mind that thin market conditions before the New Year holiday could exacerbate price movements.