The gold price (XAU/USD) faces renewed selling pressure on Wednesday after failing to build on the sharp 1% rise from the previous day, which was driven by escalating geopolitical tensions in the Middle East. A recovering US Dollar (USD), supported by signs of a robust US labor market and fading prospects for aggressive policy easing by the Federal Reserve (Fed), is putting pressure on the non-yielding precious metal.
However, the potential for a full-blown conflict in the Middle East—exacerbated by Iran’s missile attacks on Israel—provides some support for gold, a traditional safe-haven asset. Fears of a broader regional war are likely to prevent significant downside in gold, with any dip seen as a potential buying opportunity.
Key Market Movers:
- Geopolitical Risks: Iran’s missile attack on Israel in response to Israel’s aggression in Lebanon has renewed safe-haven demand for gold. Israeli Prime Minister Benjamin Netanyahu vowed retaliation, while Iran warned of further destruction if Israel responds, heightening fears of a wider conflict.
- US Labor Market Data: The Job Openings and Labor Turnover Survey (JOLTS) showed unexpected job growth in August, suggesting continued labor market strength. This supports the case for a less aggressive rate cut by the Fed, weighing on gold.
- Fed Rate Expectations: While Fed Chair Jerome Powell indicated that two more 25 bps cuts are likely this year, stronger-than-expected labor data has reduced market expectations of a larger 50 bps cut. The CME Group’s FedWatch Tool now shows a 35% chance of a supersized rate cut next month.
- Upcoming US Data: Investors are looking to the US ADP private-sector employment report for further clues on the Fed’s rate path, followed by the highly anticipated Nonfarm Payrolls (NFP) report for more market direction.
Technical Outlook: Gold is holding above a crucial support area near $2,625-$2,624, which now serves as a resistance-turned-support zone. A decisive break below this level could lead to further selling pressure, potentially dragging gold towards $2,600 and down to $2,560. On the upside, immediate resistance lies at $2,672-$2,673, with a break above $2,700 setting the stage for a continued bullish rally towards new highs.
Key Levels to Watch:
- Support: $2,625, $2,600, $2,560
- Resistance: $2,673, $2,685, $2,700
While the stronger US Dollar limits gold’s upside, the ongoing geopolitical uncertainty in the Middle East provides a safety net, making the precious metal a key asset to monitor in the coming days.
