Gold fails to provide shelter amid risk aversion; de-escalation to trigger another selloff

FUNDAMENTAL
OVERVIEW

Gold has given back all the
gains it made during the US–Iran-driven rally, which might seem surprising at
first. But this kind of move isn’t unusual. In periods of intense risk
aversion, gold often falls alongside equities as financial conditions tighten,
and traders are forced to deleverage to meet margin calls.

It looks like the worst of
the panic is behind us, and gold has started to gradually recover some of those
losses. At the same time, the US–Iran conflict is pushing energy prices higher,
which is feeding into rising inflation expectations. As long as tensions
persist, that backdrop should continue to provide support for gold.

The main downside risk for
gold would be a de-escalation. That would likely trigger another selloff, as
the market shifts its focus back to economic data, which has been showing clear
strength. We also have the NFP report on Friday. If tensions ease before then
and the jobs data comes in strong, it could be a double whammy for gold.

GOLD TECHNICAL
ANALYSIS – DAILY TIMEFRAME

On the daily chart, we can
see that gold erased all the gains from the US-Iran led rally and bounced around
the 5,000 level as dip-buyers stepped in. There’s not much we can glean from
this timeframe, so we need to zoom in to see some more details.

GOLD TECHNICAL ANALYSIS – 4
HOUR TIMEFRAME

On the 4 hour chart, we can
see the price probed below the key support zone around the 5,100 level but
eventually bounced back above it. We can expect the buyers to continue to step
in around the support with a defined risk below it to keep pushing into new
highs. The sellers, on the other hand, will look for another break to pile in
for a drop into the 4,600 level next.

GOLD TECHNICAL ANALYSIS – 1
HOUR TIMEFRAME

On the 1 hour chart, we can
see that we have a downward trendline defining the recent pullback and a
resistance zone around the 5,250 level. If the price gets there, we can expect
the sellers to step in with a defined risk above the trendline to position for
a break below the 5,100 support. The buyers, on the other hand, will look for a
break higher to increase the bullish bets into new highs. The red lines define the
average daily range for today.

UPCOMING CATALYSTS

Today we have the US ADP and the US ISM Services PMI. Tomorrow, we get the
latest US Jobless Claims figures. On Friday, we conclude the week with the US
NFP report. The market focus remains on the US-Iran war, so the data might not
matter much.