Gold dropped significantly during the Asian session as
the Middle East tensions escalated. The weakness started late yesterday after we
got reports that the US military was reducing its troop presence at bases
across the Middle East, while the State Department ordered staff cuts at
diplomatic posts in the region. The reports linked the moves to regional
threats and the possibility of US military action against Iran.
The bearish momentum then pickup up after the New York
Times reported that the US and Israeli militaries have developed specific plans
for renewed strikes on Iran after the US midterm elections. Moreover, the
report said the US is assembling forces, including three aircraft carriers,
thousands of Marines, fighter jets and special operations units, which are
expected to be fully in place by early November.
The selloff might have been connected more to fears of
a crash in the stock market as such a scenario could tighten financial
conditions considerably if the Fed is forced to remain hawkish due to inflation
risks. Real yields, on the other hand, fell slightly as inflation expectations
remain elevated while nominal yields continue to drop on growth concerns.
Tomorrow’s US Flash PMIs could be an important
catalyst. If the data surprises to the downside, growth concerns might increase
and we could see a dovish repricing further out the curve. In this scenario, we
should see gold rising as real yields will likely fall further. Stronger than
expected data, on the other hand, could quell growth fears and lead to another
selloff in the precious metal.
GOLD TECHNICAL ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can
see that gold (CFD contract) has extended
the losses further after rejecting the downward trendline and it’s now
threatening a breakdown. The sellers will likely continue to lean on the trendline,
with a defined risk above the trendline, to keep targeting the 3,885 level. The
buyers, on the other hand, will need a break above the trendline to start
positioning for a rally into the 4,700 level next, with the 4,500 level as the
first target.
GOLD TECHNICAL ANALYSIS – 4
HOUR TIMEFRAME
On the 4 hour chart, we can
see the price bounced from the 4,070 support as the buyers stepped in, with a
defined risk below it, to target a pullback into the trendline. The sellers
will want to see the price breaking lower to increase the bearish bets into the
3,885 level next.
GOLD
TECHNICAL ANALYSIS – 1 HOUR TIMEFRAME
On the 1 hour chart, there’s
not much we can add here as the buyers will likely continue to step in around
the 4,070 support, while the sellers will look for a break to increase the
bearish bets into new lows. The red lines define the average daily range for today.
UPCOMING CATALYSTS
Today we get the latest US
Jobless Claims figures, while tomorrow we conclude the week with the US Flash PMIs.
This article was written by Giuseppe Dellamotta at investinglive.com.
