Gold prices fell 1.65% on Monday to settle at their lowest level since April 29 as the strengthening U.S. dollar continued to put downward pressure on the market. The XAU/USD pair started the week with a gap to the downside and the market's inability to climb back above the 1287 level prompted some investors to lock in gains from a recent rally. Not surprisingly, breaking below the 1280 level accelerated the downward movement and dragged prices to the next significant support, in the 1263/58.60 region.
The market is trying hold above this area today but the short-term technical picture is weak at the moment, with the market trading below the Ichimoku clouds - plus we have negatively aligned Tenkan-Sen (nine-period moving average, red line) and Kijun-Sen (twenty six-day moving average, green line) lines. It appears that a retracement downwards from here is likely - in other words, the market will have a tendency to move towards the 1246/3 region where a short-term bullish trend line and the top of the daily Ichimoku cloud converge.
However, keep in mind that the long term charts are still bullish so this might just be a corrective phase. If XAU/USD finds enough support in the 1263/58.60 area, expect a bounce towards 1272/69. The bulls will have to overcome this resistance in order to revisit the 1280 level. Beyond that, sellers will be waiting at around 1287. If the bears increase pressure and eliminate the support at 1258.60, then 1253/1 will probably be the next port of call. A break down below 1251 would imply that the market will continue to retreat and test the support in the 1246/3 area.
