Gold eases after Iran attack on Israel fuels refuge rally

• Gold pulls back after Tuesday’s rally on heightened geopolitical risk from Iran’s escalation in the Middle East.
• The macro backdrop remains positive, however, with falling interest rates globally making gold shine.
• Technically, XAU/USD is consolidating, providing a buy-the-dip opportunity for bulls.

Gold (XAU/USD) is down on Wednesday to trade around $2,650 per troy ounce as traders look for some support and filling after Tuesday’s more than 1.0% gain. Instability in the Middle East was the main driver behind the previous day’s recovery, after Iran fired about 200 missiles, some of them ballistic, at Israel’s capital Tel Aviv.

That, and the fact that interest rates are falling globally, continue to support the precious metal, which continues to trade just below its new all-time high of $2,685. Lower interest rates make non-interest-bearing gold more attractive as a portfolio asset for investors.

Gold faces volatility due to changing outlook for US rates

Gold has seen volatility in the past week due to rapid changes in the outlook for US interest rates, which has also affected the strength of the US dollar (USD), another factor driving valuations.

The precious metal rose last week as bets that the Federal Reserve (Fed) would cut interest rates by another double dose of 50 basis points (0.50%) at its November meeting peaked. Expectations that the bank will cut rates further also weighed on the USD, adding momentum to the yellow metal’s rise.

However, unexpectedly strong data – covering in particular the fragile US jobs market – and a cautious speech from Fed Chairman Jerome Powell on Monday have since reduced bets for a double 50 bps cut, from over 60% last week to just 37% at press time on Wednesday.

Gold will go higher, say several big bank analysts

Gold has already gained more than 28% in 2024 and hit new records, but several analysts at major banks predict that the uptrend is not over for the precious metal, especially in the medium to long term, according to Kitco News.

Goldman Sachs said in a note on Monday that it was revising its forecast for gold from $2,700 to $2,900 by early 2025.

“We reiterate our long recommendation on gold due to gradual growth from lower global interest rates, structurally higher central bank demand and gold’s hedging benefits against geopolitical, financial and recessionary risks,” the bank said.

In a recent interview with Bloomberg News, Joni Teves, precious metals strategist at Swiss bank UBS, was also bullish on gold.

“From a broader perspective, I think the macro context is favorable for Gold. The fact that real rates are falling, the Fed is in easing mode. Fundamentally, we think physical demand is also quite resilient, even at higher gold prices,” Teves said.

“The official sector (central banks) continues to add to gold reserves, and positioning allows more gold allocations to accumulate over time. I think that continues to be the case and the risk here is that because the market hasn’t provided a lot of pullbacks, people will have to continue to watch the move higher,” he added.

The UBS strategist dismissed fears that the stock market’s overweight in long gold derivatives could risk a prolonged market correction.

“There has been an increase in short positions,” she replied. “But actually, if you look back at the historical data, we’re not at all-time highs yet, and the broader market positioning, in our view, is not yet stretched.”

Asked if UBS had seen investors continuing to buy the dips, Teves said he expected them to, as many who waited on the sidelines during the recent rapid rally were still looking for an entry.

Technical Analysis: Gold is tracking 50 SMA above

Gold is retreating to the 50-period simple moving average (SMA) on the 4-hour chart for the second time this week. The correction comes after Tuesday’s bounce back from the $2,625 low.

The short-term trend is unclear after the fairly deep decline seen on Friday and Monday. A break above the October 1 high of $2,673 would likely see a retracement to $2,680 and the record region. A break above this would likely lead to a continuation to the $2,700 round number target.

XAU/USD 4 Hour Chart

In the medium to long term, gold remains in an uptrend, and as it is a basic tenet of technical analysis that “the trend is your friend”, the odds favor a bigger rally eventually once the current period of consolidation wears off. ended

A break below the trend line at around $2,615-$2,620, however, would be a bearish sign and suggest a complete reversal of the short-term uptrend.

(This story was corrected on October 2 at 09:55 GMT to say in the headline that gold prices fall on Wednesday after Tuesday’s rally.)