The XAU/USD pair printed a bearish candle as investors started the week by taking some of profit off the table. Strength in the U.S. dollar and stock markets caused gold prices to decline 2.4% and touch their lowest level in three weeks. In my previous analysis, I pointed out a possible pull back to the 1307 level but have to admit that it happened faster than I thought. It seems that large investors wanted to reduce their heavy long positions ahead of Fed Chair Yellen's testimony to the Senate Banking Committee.
The Fed has been trying to keep the markets away from speculation on rate hikes but conflicting messages from officials have left investors completely confused. Last week, Philadelphia Fed President Charles Plosser said "We are on a path that says low for long and we have no plans to raise interest rates anytime soon, yet as the data keeps telling us, we ought to be raising rates". Unlike Plosser, Atlanta Fed President Dennis Lockhart and Chicago Fed President Charles Evans think that the central bank should wait until the second half of 2015. Until Yellen maps out the Fed's plan for rate rises, the markets will continue to speculate.
From a technical point of view, yesterday's price action indicates that higher prices are rejected by investors. The XAU/USD pair is now trading below the Ichimoku clouds and we have a bullish Tenkan-sen (nine-period moving average, red line) - Kijun-sen (twenty six-day moving average, green line) cross on the 4-hour time frame. So speaking strictly based on the charts, there is still some room for the pair to retreat unless the bulls push prices above the 1324 level. To the upside there will be hurdles such as 1312 and 1320. If prices resume the bearish tone and drop below yesterday's low, I think the first stop will be the 1297 level. Breaching that support would suggest that the pair will visit 1292 next.
