Early in the American session, gold (XAU/USD) is trading at around $1,729.06 with a bullish bias after bouncing around the 21 SMA located at 1,714.
According to the 4-hour chart, we can see that gold is overbought and it is likely to make a technical correction in the next few hours towards the 1,718 area, in order to alleviate the oversold levels and thus resume its bullish cycle.
We can see strong resistance at around 1,730. If gold manages to consolidate above this level in the next few hours, we could expect the metal to continue rising towards the 200 EMA located at 1,741.
Around the area of 1,750 (4/8 Murray) and 1,741 (200 EMA), there is strong resistance. In case of a pullback into this zone, it will be seen as an opportunity to sell gold.
On the other hand, if gold falls and bounces around 3/8 Murray at 1,718, it will be viewed as a buying opportunity. The same scenario is valid as long as gold remains above the 21 SMA at 1,714. Under such conditions, the outlook will remain positive.
In case the downside pressure intensifies, we could expect a resumption of the main downtrend and the price could reach the level of 1,687 (2/8 Murray). A sustained move below the 3/8 Murray (1,718) and below the 21 SMA (1,714) will open the door for a further decline.
Tomorrow, the US CPI data for August will be published which could lead to strong volatility in gold. A higher-than-expected CPI could support a 0.75% Fed interest rate hike and prevent gold from rising further.
Our trading plan for the next few hours is to buy above 1,718 with targets at 1,741 and 1,750. On the other hand, a pullback to 1,741 will be seen as an opportunity to sell with targets at 1,730 and 1,718.