Gold Outlook: XAU/USD Price Action Probes Big Support Zone

GOLD OUTLOOK: XAU/USD PRICE ACTION DROPS TO KEY TECHNICAL SUPPORT AREA

• Gold price action paced a 1.5% decline on Wednesday after rejecting $2,000 the prior session
• XAU/USD dropped despite falling interest rates as the US Dollar strengthened broadly
• Gold might bounce off technical support and break away from its consolidation pattern

Gold has turned lower during Wednesday’s trading session and set for a 1.5% decline. This follows gold rejecting the psychologically-significant $2,000-price level yesterday. A rebound set forth by the broader US Dollar could partly explain downward pressure felt by gold and XAU/USD price action over the last few hours. Question marks arising over potentially subdued future inflation expectations might be weighing negatively on gold prices as well.

GOLD PRICE CHART: DAILY TIME FRAME (26 MAR TO 02 SEP 2020)

Chart created by @RichDvorakFX with TradingView

With sovereign interest rates creeping back lower and economic conditions staying solid overall, however, real yields might continue their larger decline. Falling real yields stand out as a primary fundamental driver likely to help gold advance back toward all-time highs. That said, gold price action is now flirting with a key zone of technical support underpinned by a confluence of the 8-day moving average and 34-day moving average.

This area could provide buoyancy to XAU/USD with the precious metal printing a series of higher lows over the last three weeks. Topping the August 18 close near $2,010 per ounce might encourage gold bulls to set their sights on fresh record highs. On the other hand, a breakdown of the symmetrical triangle consolidation pattern, perhaps identified by a close below the $1,920-price level, could suggest more turbulence ahead for gold.

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-- Written by Rich Dvorak, Analyst for DailyFX.com

Connect with @RichDvorakFX on Twitter for real-time market insight