• A pullback of the US dollar boosts gold toward $1680.
• Reversal offers hope for XAU/USD bulls.
• Dollar still remains firm ahead of the FOMC meeting.

After the University of Michigan's report showed a decline in inflation expectations, the dollar and US yields pulled back triggering a rebound in gold that recovered from multi-month lows toward $1680.

XAU/USD broke above $1670 and climbed to $1680, hitting a fresh daily high. It is still holding an important weekly loss and the lowest close since April 2020 but the rebound could favor a short-term reversal. Gold faces a strong resistance area between $1680 and $1695.

The main trend is bearish and currently gold is hovering around $1673, where the 200-week Simple Moving Average stands.

The sharp rebound in gold took place after the September preliminary University of Michigan’s Consumer Sentiment report showed a decline in medium and long-term inflation expectations. The main index recovered from 58.2 in August to 59.2 in September, below the market consensus of 60.

The report triggered a decline in Treasuries and also weight on the greenback that turned negative. The DXY fell to 109.50 down from 110.25. The 2-year yield pulled back from the highest since 2007 at 3.92% to 3.88% and the 10-year from 3.49% to as low as 3.42%.

Gold benefit a staged a sharp rebound. Also silver turned positive with XAG/USD rising toward $19.50. Silver is headed toward a modest weekly gain.

The FOMC meeting next week is critical for gold prices. The central bank is expected to raise rates by 75 basis points and to keep a hawkish tone with inflation as the main concern; all factors that have been supporting the dollar and keeping metals under pressure.

Technical levels