Early in the European session, Gold (XAU/USD) is trading around 4/8 Murray at 1,625. We can see that gold is under strong bearish pressure but could find support around 1,615-1,625.
Risk aversion is causing investors to take refuge in the US dollar. In 10 days, the Federal Reserve will hold the monetary policy meeting, scheduled for November 1 and 2. The bank is expected to raise the funds rate by 0.75% for the fourth time in a row, giving the dollar bullish momentum.
Gold is trading at a key support level around 4/8 Murray. In case bearish pressure continues, the price could drop towards the 27 Sep low. A strong technical bounce around 1,615 could offer a rally for gold and we could expect it to rebound towards the zone of 21 SMA at 1,647.
The fall in XAU/USD seen in the last few hours is entirely due to a strong boost in demand for the US dollar and the increase in treasury bond yields which are inversely correlated. The US 10-year bond yields climbed to 4.09%, the highest level since 2008, while the 20-year bond is testing 4.50%.
A sharp breakout of the downtrend channel formed since September 30 and a daily close above the 21 SMA located at 1,647 could ease the bearish pressure so that gold could reach the 200 EMA located at 1,682.
The eagle indicator reached the extremely oversold zone around 5-points which is likely to signal an imminent bounce in the next few hours or in the American session. As gold is being very overbought, we can expect the asset to make a technical bounce around 1,625, or in the event of a drop, the bounce will be stronger from around 1,615.
Additionally, if gold manages to consolidate above the key 1,650 level or above 5/8 Murray, it could be a clear signal to buy as the price could rally up to 6/8 Murray at 1,687 and could even hit the high of September 30 around 1,718.