XAU/USD buyers seek $2,670 amid Middle East risks ahead of key US data

• Gold prices rebounded early Tuesday, helped by rising Israel-Iran geopolitical risks.
• The dollar is rising despite a cautious mood ahead of headline US data and Fedspeak.
• The daily technical setup is once again turning in favor of gold buyers as the RSI re-enters bullish territory.

The price of gold returned to the green on Tuesday morning, paring a two-day correction from record highs of $2,686. Gold buyers capitalize on heightened Middle East tensions, anticipating top US ISM Manufacturing PMI survey and JOLTS Job Openings for new directives.

Gold price remains at the mercy of risk trends, US data

Geopolitical tensions are rising between Israel and Iran after the former announced a “limited” ground operation against Iran-backed militant group Hezbollah targets in the southern Lebanese border area, sending its soldiers across the border.

This comes after Iran vowed to retaliate against the killing of Hezbollah leader Hassan Nasrallah Nasrallah. Israel continued to strike Lebanon over the weekend and claimed to have killed another senior Hezbollah figure following the killing of leader Nasrallah.

Markets are turning cautious amid increased risks of retaliation from Iran, allowing the traditional gold price to recover. Moreover, US dollar buyers are taking a break ahead of a fresh batch of US statistics, while US Treasury bond yields are reversing earlier gains on deteriorating risk sentiment, limiting gold’s downside.

Upcoming US ISM manufacturing data is likely to provide fresh clues on the state of the economy, while the JOLTS survey could signal a further cooling of the US labor market. The discouraging data could revive expectations of a big interest rate cut by the US Federal Reserve (Fed) in November.

Markets’ expectations of a 50 basis point (bps) rate cut in November were dashed after Fed Chairman Jerome Powell dismissed increased bets for an excessive rate cut at the next meeting during his speech at National Association for Business Economics (NABE). Annual meeting in Nashville on Monday.

Powell said “this is not a committee that feels like it’s in a rush to cut rates quickly.” He added that “if the economy performs as expected, that would mean two more cuts this year,” both by a quarter point, aligning with forecasts officials wrote at the Sept. 18 meeting.

Powell’s tilt in favor of less aggressive policy easing by the Fed sparked a notable rally in the US dollar as US Treasury yields also moved back on the curve. Gold prices fell to four-day lows after Powell.

However, gold prices halted their correction after Atlanta Fed President Raphael Bostic warned that the Fed may have to make further excessive rate moves if the US labor market deteriorates.

Markets are now pricing in just a 36 percent chance the Fed will cut rates by 50 bps in November, down from 53.3 percent a day earlier, according to CME Group’s FedWatch tool.

Gold Price Technical Analysis: Daily Chart

The price of gold is pointing north again as the 14-day Relative Strength Index (RSI) is holding well in bullish territory, currently near 65.50.

If buyers find a foothold, static resistance near $2,670 will need to be increased to retest the $2,686 high.

Above, the next top hurdles are seen at the $2,700 level, followed by rising trendline resistance at $2,720.

On the other hand, if gold sellers regain control, acceptance below the September 24 low of $2,623 is essential to trigger a further decline towards the $2,600 level.

Further south, gold sellers could target the September 20 low of $2,585 and the 21-day simple moving average (SMA) at $2,578.