Gold recovers weekly decline after Trump denies pre-midterm Iran strikes

Fundamental perspective

Gold reversed its weekly decline after Trump stated on Truth Social yesterday that the US was engaged in constructive talks with Tehran and would not launch an attack on Iran ahead of the midterm elections.

Markets responded swiftly, undoing the escalation premium built up from prior reports that Trump considered military action against Iran before the midterms. Following Trump's post, oil prices, real yields and the US dollar all dropped, which sparked a gold rally.

Looking forward, Iranian Foreign Minister Araghchi stated yesterday that Tehran is examining Washington's answer to Iran's proposal and intends to respond in the coming days. A favourable outcome might move gold's outlook from neutral to bullish, because reduced geopolitical tensions would probably weigh further on oil prices, inflation expectations and rate hike worries. Conversely, an unfavourable response would have little effect but could cap gold's gains.

The market's attention next week will also shift to the US CPI data. A reading above expectations might cause a hawkish adjustment in Federal Reserve rate expectations, rekindling pressure on gold. On the other hand, a weak report would probably alleviate rate hike fears and give gold another lift.

Gold technical analysis — daily timeframe

Gold rallied into the downward trendline and moved above it after Trump dismissed the idea of attacking Iran before the midterms. Sellers are likely to appear near these levels, with a defined risk above the trendline, aiming for a decline to the 3,885 level. Meanwhile, buyers will keep entering above the trendline, with a defined risk below it, continuing to target the 4,700 level.

Gold technical analysis — 4 hour timeframe

The price is currently trading above the trendline, but a strong resistance exists near the 4,228 level. Sellers will probably continue to act around those levels, with a defined risk above the resistance, aiming for a decline to 3,885. Buyers, however, want to see the price break higher to add to bullish positions targeting 4,700 next, with 4,400 as the initial target.

Gold technical analysis — 1 hour timeframe

An upward trendline defines the current bullish momentum. If a pullback occurs, buyers are expected to defend the trendline, with a defined risk below it, to continue advancing to new highs. Sellers will be looking for a break lower to increase bearish bets into new lows.

Upcoming catalysts

Today the week wraps up with the University of Michigan Consumer Sentiment survey release.