Gold ended the week down by 4.64% at $1256.92 an ounce as a recent string of better-than-expected economic data prompted investors to unwind bullish bets. Breaking down below the $1304/0 zone, which I had pointed out as the key level to the downside, triggered massive long liquidation and as a result, the XAU/USD pair dropped all the way down to the $1250 region. I think the technically important $1250 level (the 38.2 retracement of the bullish run from $1046.33 to $1375.10) play an important role in the near-term. The latest data from the Commodity Futures Trading Commission (CFTC) revealed that speculative traders on the Chicago Mercantile Exchange reduced their net-long positions in gold to 245508 contracts, from 291904 a week earlier.
Fed policy makers are divided over when the next rate rise should come but they also fear that low rates could increase financial stability risks. I think the U.S. central bank has at least one interest-rate hike coming this year (most likely in December). However, the subsequent path of increases is likely to be exceptionally shallow and gradual. With these in mind, I think it wouldn't be surprising to see XAU/USD returning to the weekly cloud before finding some real support.
The short-term outlook will remain negative while XAU/USD is trading below both the daily and 4-hourly Ichimoku clouds. The Tenkan-Sen (nine-period moving average, red line) and the Kijun-Sen (twenty six-period moving average, green line) are negatively aligned. Adding to the bearish outlook is the Chikou-span (closing price plotted 26 periods behind, brown line) which dipped below prices and the Ichimoku cloud on the daily frame. To the downside, the bears have clear nearby supports such as 1250-1249.20 and 1243/0 if they intend to push prices lower. In that case, 1237, 1229.50 and 1225 will be the next possible targets. A daily close below 1225 would suggest that the market will be aiming for 1215/08. On the other hand, if the market breaks through 1263, which happens to be the top of the hourly cloud, we may see a push up to 1270/69. Clearing this barrier suggests that XAU/USD is getting ready to march towards 1277. This will be the key level for the bulls to pass in order to challenge the bears on the next battle field at 1285.