Gold holds key support as prospects for US-Iran deal improve

Gold kept sliding on Friday, with the ongoing stock-market selloff again dragging on the metal. The yellow metal has moved in close step with equities lately, and the decline probably reflects investors selling holdings to make up for losses elsewhere.

Consider an investment fund that holds stocks, gold and government bonds. If some of its equity positions suddenly collapse, the fund takes losses on leveraged trades. To meet margin calls, cut leverage or handle investor redemptions, it may need to raise cash, and it could sell whatever can be liquidated quickly rather than only the assets that triggered the losses. Gold is well suited to that situation because it trades actively and can be disposed of fast.

The week opened on a brighter note after the US refrained from striking Iran over the weekend and fresh diplomatic moves surfaced. Tehran has proposed a two-day framework to reopen the Strait of Hormuz in exchange for US concessions that include sanctions relief, the release of frozen assets and changes to the US military presence. Washington has not accepted the proposal yet.

Still, the market read the shortened timeline for reopening the Strait of Hormuz as a positive signal, and expectations of a possible deal strengthened. That could lend some support to gold and keep its downside limited.

GOLD TECHNICAL ANALYSIS – DAILY TIMEFRAME

On the daily chart, gold (CFD contract) extended Friday's decline and eventually reached the key support zone near 3,885, where the major rising trendline also sits to provide confluence. Buyers may step in at that area with risk defined below the trendline, positioning for a run to new all-time highs. Sellers, meanwhile, will look for a break lower to add bearish exposure and aim for the 3,500 level next.

GOLD TECHNICAL ANALYSIS – 4 HOUR TIMEFRAME

On the four-hour chart, a minor resistance zone is located around 3,980. If the price reaches it, sellers are expected to defend the area with risk placed above it, continuing to target a break beneath the upward trendline. Buyers, on the other hand, will watch for a move above that resistance to add bullish positions and target new highs, with the major downward trendline serving as the first objective.

GOLD TECHNICAL ANALYSIS – 1 HOUR TIMEFRAME

On the one-hour chart, a minor downward-sloping trendline defines the bearish momentum on this timeframe. Sellers are likely to keep leaning on that trendline with risk defined above it, while looking for new lows. Buyers, in turn, will need a break higher to build bullish bets and push toward fresh highs. The red lines mark the average daily range for today.

UPCOMING CATALYSTS

Today brings the US ISM Manufacturing PMI. Tomorrow, the US Job Openings data and the US midterm elections are due. Wednesday features the US ADP and the US ISM Services PMI, Thursday has the latest US Jobless Claims data, and Friday wraps up the week with the US NFP report and the University of Michigan Consumer sentiment survey.