The XAU/USD pair continued to sink during yesterday's session and touched its lowest level since January 23 as the American dollar maintained its strength across the board on growing conviction that the U.S. Federal Reserve will begin altering its monetary policy sooner than previously thought. The bears have been dominant since prices touched the $1344.92 level in July. Although there are some uncertainties which would generally drive gold prices higher, the market is focusing much on the fact that the U.S. economy is steadily improving. In addition (to the dollar's strength), persistent uptrend in stock markets is making gold less popular.
The recent price actions also confirms that there is more strength behind the bears than the bulls. Last week the XAU/USD pair broke below the ascending trend-line and also closed below the 1272.90 support level. In my previous analysis, I have been telling that the XAU/USD pair will resume its bearish sentiment as long as we continue to trade below the Ichimoku clouds on the weekly, daily and 4-hour time frames. The pair is currently trading behind the 1240 line which I see as a critical level and because of that I think the odds favor a further drop.
To the down side, there is an support between the 1235 and 1231. If the bears capture that area, I think they will be aiming for 1225/4 next. Closing below 1225/4 would indicate that the pair will extend its losses and target the 1213 support level afterwards. The bulls will have to push the market above the 1246.80 if they don't want to give up. Beyond that, resistance can be found at the 1252 level where the Kijun-sen (twenty six-day moving average, green line) resides on the 4-hour chart.
