Gold prices seen capped by US-Iran impasse and strong NFP threat

Fundamental Overview

Gold prices rose sharply in the wake of the softer-than-anticipated US PCE release, yet surrendered those gains by the US close and moved deeper into negative territory.

No clear catalyst drove the decline, just as none truly sparked the rally, given that the downside surprise in the PCE data was largely attributable to the BEA's annual methodological update and revisions.

The BEA altered how it constructs certain prices. The uncertainty surrounding these revisions led economists to caution beforehand that the revisions could materially lower reported core PCE. In the end, the release was not a game changer.

Gold trading is likely to stay rangebound in the near term, with lower probabilities for an October rate hike and the ongoing US-Iran talks limiting the downside. A prolonged stalemate or negative geopolitical headlines, however, could tilt the balance towards bearish pressure.

Friday brings the US NFP report. While a stronger-than-expected reading might not move the needle much, a very strong employment report could trigger a hawkish repricing and pressure gold. A surprisingly weak report, conversely, could support the precious metal in the short term as traders scale back some aggressive rate hike bets.

Gold Technical Analysis – Daily Timeframe

Gold (CFD contract) has been recovering from Monday's lows on renewed optimism around a US-Iran deal. Sellers' natural target is the 3,885 level, which also aligns with a major upward trendline. Should the price reach there, buyers are expected to step in with defined risk below the upward trendline to position for a rally toward new record highs. Sellers, on the other hand, will look for a breakdown to extend the drop toward the 3,500 level.

Gold Technical Analysis – 4 Hour Timeframe

A downward trendline defines the bearish pattern. If the price pulls back into the trendline, sellers are expected to lean on it with a defined risk above it, continuing to target the 3,885 level. Buyers will want to see the price breaking higher to position for a correction toward the 4,500 level.

Gold Technical Analysis – 1 Hour Timeframe

The price broke below the counter-trendline yesterday and extended losses as more sellers entered. The bounce from the 4,140 level makes this a minor support level. If the price breaks below this support, sellers are expected to increase bearish bets to target the 3,885 level. Buyers, conversely, will likely step in near this support with a defined risk below it to extend the pullback into the major downward trendline. The red lines define the average daily range for the day.

Upcoming Catalysts

Today's data includes the US ISM Manufacturing PMI and the latest US Jobless Claims figures. The week concludes tomorrow with the US NFP report. The focus, however, will remain on US-Iran developments.