Gold declines on Middle East escalation, growth fears may cushion losses

Gold fell sharply in Asian trading as Middle East tensions intensified. The decline began late the previous day after reports emerged that the US military was reducing its troop presence at bases across the Middle East, while the State Department also cut staff at diplomatic posts in the region. These moves were linked to regional threats and the possibility of US military action against Iran.

Bearish momentum accelerated after the New York Times reported that the US and Israeli militaries had drawn up specific plans for renewed strikes on Iran following the US midterm elections. The report also stated that the US was assembling forces including three aircraft carriers, thousands of Marines, fighter jets and special operations units, expected to be in place by early November.

The selloff may have been more tied to worries about a stock market crash, which could significantly tighten financial conditions if the Federal Reserve stays hawkish due to inflation risks. Meanwhile, real yields edged lower as inflation expectations remained elevated and nominal yields continued to decline on growth concerns.

Tomorrow's US Flash PMIs could be an important catalyst. If the data comes in below expectations, growth anxieties might rise and lead to a dovish repricing further out the curve. In that scenario, gold would likely rise as real yields fall further. Conversely, stronger-than-expected data could ease growth fears and trigger another selloff in the precious metal.

GOLD TECHNICAL ANALYSIS – DAILY TIMEFRAME

Gold has extended its losses after being rejected by the downward trendline and is now threatening a breakdown. Sellers are expected to continue leaning on the trendline, with a defined risk above it, targeting the 3,885 level. Buyers, on the other hand, need a break above the trendline to start positioning for a rally toward the 4,700 level next, with 4,500 as the first target.

GOLD TECHNICAL ANALYSIS – 4 HOUR TIMEFRAME

The price bounced from the 4,070 support as buyers stepped in, with a defined risk below that level, aiming for a pullback to the trendline. Sellers will want to see the price break lower to increase bearish bets toward the 3,885 level next.

GOLD TECHNICAL ANALYSIS – 1 HOUR TIMEFRAME

There is little to add on the 1-hour timeframe, as buyers are expected to keep stepping in around the 4,070 support, while sellers will look for a breakdown to add to bearish positions and push to new lows.

UPCOMING CATALYSTS

Today we get the latest US Jobless Claims figures, and tomorrow the week concludes with the US Flash PMIs.