Gold under pressure after Trump rejects Iranian Strait of Hormuz proposal

FUNDAMENTAL OVERVIEW

Gold faced renewed downward pressure last week after Donald Trump dampened hopes for an early resolution to the conflict with Iran. He reiterated that the United States would only negotiate with Tehran after the November elections. Following his comments, oil prices, real yields and the US dollar all began climbing, which in turn weighed on the precious metal.

As the weekend approached, optimism about a US-Iran agreement resurfaced after Iran put forward a proposal to reopen the Strait of Hormuz within seven days, subject to certain conditions. That development helped prevent a further slide in gold.

However, Trump rejected the offer on Saturday and informed reporters that he anticipates renewed bombing of Iran after the midterms, as reported by the Wall Street Journal. Gold opened lower this week and continued falling during the Asian session as earlier optimism dissipated.

Attention will stay focused on the Middle East and the Federal Reserve. A breakthrough could prove positive for gold in the near term, as aggressive rate hike expectations would likely be scaled back. Conversely, a prolonged deadlock or a fresh escalation is expected to keep pressuring the metal.

GOLD TECHNICAL ANALYSIS – DAILY TIMEFRAME

On the daily chart, gold eventually broke down after Trump dismissed Iran's latest proposal to reopen the Strait of Hormuz. The next logical target, all else being equal, is the 3,885 level, where a major upward trendline also sits. Should prices reach that area, buyers may step in with a defined risk below the trendline, positioning for a rally to new record highs. Sellers, meanwhile, will aim for a breakdown to extend losses toward the 3,500 level.

GOLD TECHNICAL ANALYSIS – 4 HOUR TIMEFRAME

A downward trendline on the 4-hour chart defines the bearish structure. If the price retraces to that trendline, sellers are expected to lean on it with a defined risk above it, continuing to target the 3,885 level. Buyers, on the other hand, will look for a break higher to position for a correction toward the 4,500 level.

GOLD TECHNICAL ANALYSIS – 1 HOUR TIMEFRAME

The 1-hour chart offers little to analyse given the sharp decline and the absence of nearby key technical levels. Sellers may want to wait for a pullback that creates a counter-trendline before entering on a break to new lows. Buyers will likely use a potential counter-trendline to push toward the major downward trendline. The red lines mark the average daily range for today, highlighting the strength of the selloff.

UPCOMING CATALYSTS

The US Consumer Confidence report and Job Openings data are due tomorrow. Wednesday brings the US ADP employment report and the PCE price index. On Thursday, the US ISM Manufacturing PMI and weekly Jobless Claims are scheduled. The week concludes on Friday with the US Non-Farm Payrolls report.