Gold prices dropped $6.82 an ounce yesterday, giving up most of the gains made in the previous session, as optimistic U.S. economic data bolstered the case for the Federal Reserve to raise interest rates in coming months. The flash services purchasing managers’ index rose to 54.8 from 52.3 last month, according to Markit Economics’ report for October. The Commerce Department said sales of new single-family homes increased 3.1% in September from the prior month.
Not surprisingly, failing to break through the 1280/77 zone which I had pointed out as a key to the upside also weighed on the market. As a result, the XAU/USD pair dropped below the 1272/0 area and retreated to 1266/4 as forecasted. Today the market is hovering just above the 4-hourly Ichimoku cloud that is acting as an effective support at the moment. Positive Tenkan-sen (nine-period moving average, red line) - Kijun-sen (twenty six-period moving average, green line) cross on the same chart suggests that the bulls haven’t given up yet.
However, the upside potential will be limited until prices passes through 1280/77. But of course, in order to make a fresh assault on that barrier, the market has to climb above 1272/0 again. A sustained break above 1280 would indicate that the 1286 level will be the next stop. Similarly, the bears have to drag prices below the 1266/4 area, if they intend to tackle the 1260 support level (the bottom of the Ichimoku cloud on the H4 chart). Eliminating this support would open up the risk of a move towards the 1250-1249.20 zone. On its way down, support may be found at 1255.
