Gold settled up $6.75 at $1269.12 on Wednesday as a weaker dollar provided some support for the precious metal. The XAU/USD pair extended its gains and reached the $1270/69 area as expected after the $1265/3 resistance was broken. The market had been going back and forth in a tight range recently, so breaking out of this consolidation is a positive development.

The short-term outlook suggests that there is a possibility of prices marching towards the 1277 level as long as the market stays above the 1265/3 area. Breaching this barrier which happens to be the top of the 4-hourly cloud is essential for a bullish continuation towards 1285. Only a daily close above the 1285 level could provide the bulls the extra fuel they need to march to 1292 where the daily Kijun-Sen (twenty six-period moving average, green line) resides.

However, keep in mind that the upside potential will be limited as prices move below the daily cloud. In addition to that, trading within the boundaries of the Ichimoku cloud on the daily chart suggests that the market is looking for a direction. That said, if prices drop back below 1265/3, XAU/USD might test 1256.45 afterwards. Once below that, expect XAU/USD to return to the strategic 1250-1249.20 area.