** Gold is likely to begin correction phase from current level as Higher High (HH) has been printed
** Gold price may fell as low as $1250 in near future
** Bias will remain bullish as far as $1237 support remains intact
** Yellen clearly said that she would stick to her predecessor's policy of gradual tapering
Gold price retreated yesterday after facing resistance near $1292, now the yellow metal is likely to extend correction up to $1250, according to technical analysis. On January 24th, when the price of gold was traded near $1250, I predicted that bullion price might test $1272 resistance before resuming the downside correction. As predicted, gold did exactly the same; gold price held off $1272 resistance nicely and then resumed the correction phase which ended around $1237.
On February 5th, when the price was near $1243, again I predicted that gold might test $1292 resistance in near future. In fact, gold prices reached the predicted level yesterday, now it appears to me that it's time for a retracement. Gold futures are being traded near $1286 at 10:30 GMT on Wednesday, during the London session. Immediate resistance is seen near $1292, i.e. the 61.8% fib level, ahead of channel resistance, which is currently near $1300. A break and daily close above channel resistance may push gold prices into a stronger bullish momentum. However, chances are fairly high that we might see a limited bearish reversal from the current levels.
Gold Price Daily Chart (XAU/USD)
On the downside, support may be noted at $1283, which is the trendline resistance-turned-support of the old rising wedge formation. A break and close below $1283 may expose the $1268-$1270 zone, which is the 50% fib level, and then the lower channel of the upward slope, as demonstrated in the chart above. So keeping in view abovementioned price action signals, I see this sort of price movement in gold price during the next 5-10 days.
Bias for gold prices will remain bullish as long as the $1237 support remains intact. The Commodity Channel Index (CCI) is retreating from extreme overbought territory on the daily chart; the current reading is +167. A reading above +100 shows overbought sentiment. The Relative Strength Index (RSI) is just ahead of overbought zone on the daily chart. However, on the four-hour timeframe, it is also retreating from overbought territory. Considerable divergence is not being noted on any timeframe with MACD.
On Tuesday, the new Federal Reserve Chair, Janet Yellen, shrugged off the recent non-farm payrolls report that missed expectations by a long shot. While responding to a question about non-farm payrolls, she stated that one should analyze job data patiently before jumping to conclusions. Yellen made clear that she would stick to Bernanke's policy of gradual trimming in stimulus as far as the labor market is showing favorable outcomes. In particular, Yellen mentioned the jobless rate, that slumped to 6.6% in January, a new five-year low record level. However, at the same time, she looked a little bit concerned about the unemployment situation. "While growth picked up, recovery in the labor sector is still far from completion" Yellen commented. The US dollar rose yesterday against a basket of six major currencies after Yellen's remarks; the same bullish trend for the USD is being seen today.