Gold is down today as conflicting signals about efforts to end the war with Iran have clouded inflation prospects and the Federal Reserve's rate path. The metal trades around $4,113 per ounce after falling more than 1% since the start of the week. Silver fell 0.1% to $57.88, and platinum and palladium also slipped slightly.
Oil, meanwhile, stabilized after retreating from a five-month high on Tuesday. Media reported yesterday that a deal to end the conflict was close, but later refuted that information. Note that this backdrop is inconvenient for gold because expensive energy boosts inflation fears, which in turn support expectations of tighter policy. The metal has lost roughly a fifth of its value since late February, when the U.S.–Iran conflict flared and pushed energy prices higher.
Additional signals came from the bond market and U.S. data. Long-term Treasuries rose on Tuesday amid the oil pullback and signs of a cooling U.S. economy. Housing starts fell in September, and the pending home sales index dropped to a record low. However, for gold — which produces no yield — high borrowing costs remain a headwind.
Traders have few fresh guides ahead of next week's Fed meeting. Fed chair Kevin Warsh, in remarks on Friday, before the blackout period, did not dispel expectations that the rate would be held. The probability of a quarter-point hike is now less than one in six. At the same time, inflation remains well above the 2% target, and traders put the odds of another hike later this year at roughly 85%.
All this suggests gold is currently trapped between a weakening U.S. economy and expectations of further rate hikes. I think the metal will remain under pressure in the coming days and hover around $4,100; a noticeable rise will become possible only with real progress in Iran talks and lower oil.
As for gold's technical picture, buyers need to take out the nearest resistance at $4,192. This will allow targeting $4,249, above which a breakout will be fairly difficult. The farthest target will be the $4,304 area. In case of a gold decline, bears will try to seize control of $4,124. If that is achieved, a break of the range will deal a serious blow to bulls' positions and push Gold to a $4,062 low with the prospect of moving down to $4,047.