Early in the American, session gold (XAU/USD) is trading around 1,647. It is below the 21 SMA and below 5/8 Murray.

On the 4-hour chart, we can see that gold is trading within a downtrend channel formed on September 30th. This channel remains intact and is likely to encourage a gold rally in the coming hours if the metal finds support at around 1,642.

In the last hours, we can notice that gold touched the bottom of the downtrend channel which could offer a technical bounce and the metal could reach the resistance zone of the 21 SMA at 1,670 or it could even reach the top of the channel around 1,675.

The sharp drop in gold is observed in the last bearish candlestick. This happened after the publication of the US inflation data, which were higher than expected, triggering a sharp rise in the dollar in the currency market.

The US dollar advanced across the board in light of the inflation figures. The 10-year bond yield jumped from 3.84% to 4.02%, a new high. Gold is inversely correlated with Treasury bonds, hence gold fell rapidly. However, we could expect a recovery in the coming hours towards the zone of 1,670 (21 SMA).

In case of a confirmed break below 1,640, XAU/USD would be weakened, targeting the 4/8 Murray zone at 1,625. If the asset recovers above 1,670, the picture could benefit gold and it could reach the 200 EMA at 1,692.