At the opening of trading this week, Gold (XAU/USD) opened with a bearish gap that was completely covered in yesterday's American session, although the bullish momentum only allowed to cover this GAP. Now, the metal is showing signs of exhaustion and a technical correction is likely to occur in the next few hours.
According to the daily chart, gold is trading inside the downtrend channel which has been in progress since July 20. This channel has proven to be very strong. As long as gold trades below 1,687, it could fall towards the support of 21 SMA located at 1,653.
Additionally, a sharp break below 1,650 could favor a drop in gold and the price could reach 4/8 Murray at 1,625.
On the other hand, a close above 1,687 (6/8 Murray) on the daily chart and above the downtrend channel could accelerate the bullish move and gold could reach 7/8 Murray.
This week, gold is showing positive sentiment supported by the equity market, but it is likely to trade in a range until after the release of US inflation data on Thursday in the American session.
If the US CPI shows the sign of a slowdown in inflation which is good for the economy, this could encourage the recovery of gold and it could quickly reach the psychological level of 1,700 and even higher at 1,758.
On the contrary, a higher CPI which is bad for the US economy could weaken the strength of gold and the price could fall quickly to 1,650 and 1,625.
The eagle indicator on the 4-hour chart is at overbought levels. On the daily chart, it remains within positive levels, which suggests that the bulls are still in control, but a technical correction could occur in the next few days.