The XAU/USD pair tried to climb above the 1328/31 area yesterday after Ukraine said their military were engaging in active attacks against the separatists’ bases, but failed after encountering heavy resistance and pulled back to the 1325 level. Adding to geopolitical worries, Iraq’s political leaders failed to start the process of forming a new government while Israel hit Gaza with air strikes.
Despite geopolitical risks which would generally drive gold prices higher, the lack of bullish movement is something to watch. I believe heightened appetite for more conventional assets such as stocks is limiting the precious metal’s advance. Yesterday, The Dow Jones industrial average and S&P 500 closed at record highs. Tightening trading range indicates that gold investors are reluctant to make aggressive bets and waiting on the sidelines ahead of the Thursday’s jobs report.
I think today’s key levels to watch will be 1331 and 1320/19 as we are trapped in a relatively small range. Since the market found both support and resistance around the 1331 level several times in the past 12 months, I consider it as a strategic point. Only a sustained break above this level could give the bulls the extra power they need to visit the 1340 resistance. However, if the bears take over and manage to shatter the 1319 support level, then the next possible targets will be 1315.50 and 1312.