Gold prices initially advanced on Monday but encountered resistance below the 1235 level as a rebound in the dollar prompted investors to take profits after the precious metal’s sharp rally the week before. Since the beginning of last week, one beneficiary of the weakening greenback has been gold, posting its biggest gains since January following disappointing U.S. economic data but yesterday’s price action suggests that market players investors don’t want to take big risks ahead of the release of the Federal Open Market Committee’s April meeting minutes.
On the one hand we see bearish pressure from rising U.S. bond yields, lackluster physical demand from Asia and dominant uptrend in equities markets but on the other hand a pause in the dollar rally and concerns that higher energy costs will spur inflation have also brought investors back to gold. From a technical standpoint, there is the possibility of further price gains as long as the XAU/USD pair remains above the Ichimoku clouds, though I don’t rule out a pullback to the 1214.50 – 1212 area where the top of the daily cloud reside. In order for the market to visit that support, sellers will need to drag prices below 1217.50.
To the upside, I will be keeping an eye on the 1226.50 level which happens to be the Tenkan-Sen line (nine-period moving average, red line) on the 4-hour time frame. If the bulls clear this initial resistance, then they may have another chance to test the 1235 level. Closing beyond that could attract new buying and consequently we could see a test of the 61.8% zone and a former support/resistance around 1245/0.
