FX.co ★ Gold: larger growth invalidated, 1,688 as target

The price of Gold crashed in the last hours as the Dollar Index rallied right after the US inflation data publication. USD's appreciation versus the other currencies forced the yellow metal to drop.

Fundamentally, XAU/USD plunged after the US reported higher inflation in August. The CPI rose by 0.1% versus a 0.1% drop expected, while the Core CPI surged by 0.6% exceeding the 0.3% growth forecasted. As you already know from my analyses, when the USD appreciates, XAU/USD could drop.

Higher inflation should force the FED to continue hiking rates. A 75bps is in the cards in September, that's why Gold dropped. Tomorrow, the UK inflation data could have a big impact on Gold.

XAU/USD Massive Drop Post US CPI!

As you can see on the H1 chart, XAU/USD increased within an up-channel pattern. The valid breakout through the downtrend line signaled a larger swing higher, but the fundamentals invalidated further growth.

The rate failed to stay above the 1,726 and above the uptrend line after the US data. The aggressive breakdown signaled that the leg higher ended. Technically, the up-channel pattern represented a bearish formation.

Now, it stands below the downtrend line. The rate came back within the down-channel body. After its massive drop, XAU/USD could try to rebound and recover.

Gold Forecast!

The downtrend line, 1,707 - 1,711 area, and the weekly pivot point of 1,712 represent near-term resistance levels. Testing and retesting these obstacles, registering only false breakouts could announce a new sell-off. A minor rebound could bring new short opportunities.

The 1,688 range's support represents a downside target. A valid breakdown below this level may open the door for a larger downside movement and could help the sellers to enter short again.