On Tuesday (September 17), spot gold once fell sharply to nearly $2,560/ounce, under pressure from stronger-than-expected U.S. retail sales, but then the price of gold clearly broke away from the low and closed at around $2,570/ounce. In early Asian trading on Wednesday, the price of gold rebounded further to around $2,475/ounce. Analysts pointed out that the Middle East conflict is likely to escalate, and the resulting safe-haven buying has stimulated the rebound of gold prices from the lows.
FXStreet analyst Christian Borjon Valencia pointed out that the rise in gold prices stagnated after the release of strong U.S. macroeconomic data. U.S. retail sales exceeded expectations and industrial production improved in August, pushing the U.S. dollar index higher.
Valencia added that geopolitical tensions in the Middle East have escalated, and Hezbollah has accused Israel of the recent explosions. The news provides support for safe-haven asset gold.
U.S. retail sales rose 0.1% month-on-month in August, better than the expected decline of 0.2%. In addition, U.S. industrial output rose 0.8% month-on-month in August, rebounding from a contraction of -0.9% in the previous month.
After the release of the US retail sales data, the price of gold fell to as low as $2,560.64 per ounce during the New York session.
The subsequent rebound in gold prices helped gold narrow its intraday losses. As of the close of Tuesday, the price of gold fell 0.5% to $2,569.37 per ounce.
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The Middle East conflict may escalate
Valencia wrote that the Middle East conflict may escalate. Al Jazeera reported that Hezbollah in Lebanon accused Israel of a series of pager explosions and said Israel would be "fairly punished."
On the afternoon of September 17, local time, during the ministerial meeting of the Lebanese caretaker government, pager explosions occurred in Beirut, the capital of Lebanon, and in many places in southeastern and northeastern Lebanon.
Lebanese Minister of Public Health Abyad said that the explosion has killed 9 people and injured about 2,800 people, of which about 200 were in critical condition.
Hezbollah in Lebanon issued a statement that Israel was "fully responsible" for the pager explosions and vowed to take retaliatory actions. In addition, the Lebanese caretaker government also condemned the incident on the same day.
U.S. State Department spokesman Mathew Miller said the United States was not involved in the incident and did not know who was responsible for it.
Lebanese Hezbollah officials said the pager explosion constituted "the biggest security breach to date."
Israel's Channel 14 reported that "senior Israeli military officials are preparing for the third Hezbollah war, which is expected to begin immediately."
The U.S. State Department said the United States "was not aware of the operation and was not involved" in the attack. The Biden administration said it was "still collecting information."
The Wall Street Journal provided some preliminary details about the complex attack, which Lebanon and Arabs condemned as a major "terrorist attack."
The Wall Street Journal wrote: "People familiar with the matter said the affected pagers came from a new batch received by the organization in recent days." A Hezbollah official said hundreds of militants have such devices, and he speculated that malware may have caused the explosion of these devices.
Israel has not yet made an official comment, but some reports from the region say that preparations for war are underway.
Fed decision coming
On Wednesday, investors will focus on the Fed's interest rate decision and Fed Chairman Powell's press conference, which is expected to trigger a big move in the gold market.
According to the Chicago Mercantile Exchange (CME) "FedWatch" tool, the Fed has a 63% chance of a 50 basis point rate cut, while the chance of a 25 basis point cut is 37%.
Because gold does not generate interest, a low interest rate environment can reduce the opportunity cost of investing in gold, which is more beneficial to it.
Phillip Streible, chief market strategist at Blue Line Futures, said that the market has already priced in a 50 basis point rate cut by the Fed, which is why gold prices are so high. If the Fed only cuts by 25 basis points in the end, gold prices will fall.
Goldman Sachs Group Inc. said that if the Fed decides to cut interest rates by only 25 basis points this week, gold prices may see a small correction in the short term.
Investors are still divided on whether the Fed will start its easing cycle with a 50 basis point rate cut this week, or a more moderate 25 basis point cut as Goldman Sachs expects.
Goldman Sachs analysts said: "Goldman Sachs economists expect the Federal Reserve to cut interest rates by 25 basis points on Wednesday. Under this base case scenario, gold prices may see some tactical pullbacks."
However, Goldman Sachs also pointed out that gold prices will then rise to record highs driven by inflows into gold ETFs.
How to trade gold?
FXStreet analyst Christian Borjon Valencia pointed out that despite the pullback in gold prices, there is still an upward bias. Gold is about to form a three-candle Evening Star - a bearish chart pattern. In the short term, momentum favors sellers, and the relative strength index (RSI) has fallen, breaking through the previous peak level, indicating the strength of the bears.
In this case, gold prices may test the psychological level of $2,550/oz. Once this level is lost, the next target will be the August 20 high of $2,531/oz, and then the September 6 low of $2,485/oz.
Valencia added that, conversely, if buyers push prices to the all-time high of $2,589/oz, then the uptrend in gold will resume. If this high is broken, further gains are expected to be seen towards the psychological levels of $2,600/oz, $2,650/oz, and $2,700/oz.
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2024-09-18
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