Gold prices (XAU/USD) settled slightly higher yesterday but remained within the previous day's trading range. The XAU/USD pair seems to be trying to form a bottom since the prices bounced off of the 1306.05 level which is also the 50% retracement based on the bullish run from 1251.60 to 1361.76. For a long time the gold market participants have been speculating that the Federal Reserve will begin reducing its bond-buying program and end it in 2014 if the employment outlook shows sustainable improvement (i.e. unemployment rate reaches 6.5%) and these speculations caused investors’ confidence in gold to erode. It seems the prospect that the Federal Reserve's tone will remain dovish until the spring is good for major stock exchanges but not for gold at the moment.

On the weekly, daily and 4-hour time frames, the XAU/USD pair is trading below the Ichimoku clouds and that means the outlook for gold is still tough. Although technical formation on charts suggests there is still some room for the pair to sink in the long run, intra-day traders should watch the 1306 and 1326 levels. If the bulls manage to hold prices above the 1306.05 support level, we could see a rebound towards 1326. Breaking through this resistance level might change the short-term outlook and give the bulls extra power they need to tackle the 1335.92 - 1345 zone.

In order to dominate the market, the bulls will have to push prices above the 1356 level. However, if the American dollar gets a boost from the upcoming fundamentals and the pair successfully breaks below the 1306 level, we could move back to 1293. A daily close below 1293 would confirm that the bears are firmly in control.