Gold Rally Fades After US Strikes Iran; Midterms in View

Gold moved sharply higher yesterday as hopes for a US-Iran deal grew. The gain followed Iran’s President saying the Supreme Leader had given the government certain authorities over negotiations.

The market interpreted the development as a sign of more room to negotiate a deal, because strategic decisions still rest with the Supreme Leader.

Those gains faded, however, once the US hit sites on Iran’s Qeshm Island overnight. US officials described the strike as a response to Iran firing at a US aircraft and said it did not represent the beginning of wider US operations.

Trump said he is not seeking to strike Iran after the midterm elections, though officials confirmed he is weighing all options. Separately, Axios said the CIA Director’s advice was for Trump to stick with a “no war, no deal” stance and allow economic pressure on Iran to continue.

Attention now turns to today’s US midterm elections, though the first results will arrive very late in the day. The Democrats are widely expected to win the House, an outcome that should already be priced in. The less consensus outcomes would be a red sweep or a blue sweep.

In the first case, additional tax cuts and increased defence spending could lead to a repricing of Treasury yields to the upside, with gold coming under pressure. In the second scenario, the opposite could appear, as a Democratic win would likely bring legislative gridlock on the agenda.

GOLD TECHNICAL ANALYSIS – DAILY TIMEFRAME

In the daily timeframe, gold (CFD contract) bounced around the key support zone near the 3,885 level before pulling back a little. If support and the major upward trendline are retested once more, buyers may step in, with risk defined below the trendline, to position for a rally to new record highs. Sellers, by contrast, will be watching for a break lower to add bearish bets toward the 3,500 level next.

GOLD TECHNICAL ANALYSIS – 4 HOUR TIMEFRAME

In the 4-hour timeframe, a minor resistance zone sits around the 3,980 level. If the price reaches it, sellers may step in around that resistance, with risk defined above it, while continuing to target a break below the upward trendline. Buyers, meanwhile, will look for a break higher to add bullish bets toward new highs, with the major downward trendline as the first target.

GOLD TECHNICAL ANALYSIS – 1 HOUR TIMEFRAME

In the 1-hour timeframe, the price pushed above the trendline yesterday amid growing expectations that a US-Iran deal was imminent, but it eventually surrendered most of those gains after the overnight setback. From a risk-management view, buyers still have a better risk-to-reward setup around the 3,885 support zone, while sellers need a break below the upward trendline to open the door to new lows.

UPCOMING CATALYSTS

Today brings the US Job Openings data and the US midterm elections, with the first results due early tomorrow. Tomorrow features the US ADP and the US ISM Services PMI. Thursday brings the latest US Jobless Claims data. Friday closes the week with the US NFP report and the University of Michigan Consumer sentiment survey.