Early in the European session, Gold (XAU/USD) is trading at around 1,668. A slight pullback is seen after the pair printed a high of 1,676 at the opening of trading this week.

In the coming hours, gold is likely to make a technical correction towards the 21 SMA at 1,668 and could even fall towards the key support located around 1,663-1,656 (1/8 Murray).

The overall trend now is a downtrend and a recovery is likely in the coming days towards the psychological level of 1,700.

Last week, gold bottomed out at 1,654, the lowest level since April 2020. In the last hours, XAU/USD recouped part of the losses of the Friday session, rising to 1,678-1,680. However, a technical correction is expected that could favor a technical rebound.

Gold was propped up by negative US data released on Friday. This triggered a decline in Treasuries and also weighed on the dollar index. 10-year Treasury yields fell from the highest level since 2007, from 3.49% to 3.42%.

The FOMC meeting is critical for gold prices. The central bank is expected to raise the official funds rate by 0.75% -1.00 %.

All in all, investors are betting on a jumbo rate hike. This policy move could initially push gold lower, but the metal is likely to recover after the official announcement because the market has already priced in this decision. Therefore, a recovery in gold could push the price up to the area of 1,800, only if it settles above 1,650.

According to the 1-hour chart, gold has broken out of the downtrend channel formed since September 12th. A pullback is expected in the next few hours towards the area of 1,668 (21 SMA) - 1,656 (1/8 Murray).

In case gold consolidates above 1,656-1,663, it will be seen as a buying opportunity. Around this zone, the 61.8% Fibonacci level is located which means a technical bounce from 1,653 to 1,680.

In the next few hours, our trading plan is to buy above 1,660 with targets at 1,687 and 1,699. The eagle indicator is giving a positive signal which supports our bullish strategy.