Gold Price Forecast: XAU/USD battles $1,850 on road to recovery amid Middle East risks

Gold price is hovering around $1,850, sitting at the highest level in six days in Monday’s Asian trading. Gold price is stabilizing after an early reaction to the weekend’s news of the Middle East conflict that spooked investors and triggered a flight to safety across the financial markets.

Middle East conflict, thin trading support Gold price

Gold price opened Monday’s trading with a $15 opening gap as risk-off flows seeped into markets after the Hamas movement from the Gaza enclave launched airstrikes on an Israeli town near the Gaza strip, killing nearly 1000 people and taking many hostages. In retaliation, Israel declared ‘a state of war’. Israeli air attacks have killed more than 400 people and damaged numerous residential buildings in the besieged Gaza Strip.

Renewed geopolitical conflict in the Middle East rattled investors’ nerves and boosted safe havens such as Gold price, the US Dollar, US Treasuries and the Japanese Yen. Fears that the Hamas-Israel violence would spread into other regions, especially with Iran supporting Hamas and Lebanon’s Hezbollah, threatening a shutdown of the Strait of Hormuz. A potential closure of Tehran’s vital shipping artery spiked up Oil price, fuelling further inflationary concerns, as central banks worldwide continue their battles to tame inflation.

Escalating geopolitical crisis also put global economic growth at risk, adding to the market’s pain. Amidst these concerns, Gold price found a fresh impetus to extend Friday’s rebound led by mixed US labor market rebound.

In an initial reaction to the headline US Nonfarm Payrolls print, Gold price tumbled to fresh seven-month lows of $1,811 before staging a solid comeback to settle the week near the day’s high of $1,835. The headline NFP data showed a surprise increase of 336,000 in September, compared with a 170k job gain expected and the revision 221k figure. However, Average Hourly Earnings rose 4.2% YoY in September, at a slightly slower pace than August’s 4.3% rise. Unemployment Rate unexpectedly steadied at 3.8% in the reported month.

Softer wage inflation combined with cooling labor market conditions in the United States cast doubts on the expectations of one more rate hike by the US Federal Reserve (Fed) by year-end, weighing heavily on the US Dollar and the US Treasury bond yields. Investors also resorted to position readjustments on Friday ahead of this week’s critical US inflation data release, motivating Gold price to find a floor.

Looking ahead, all eyes will remain on fresh updates surrounding the Middle East conflict, which could have a fresh impact on the US Dollar and Gold price valuation. Further upside in the Gold price could remain capped should the US Dollar see increased demand as a safe-haven asset. Gold price could be subject to volatility due to thin trading, as the Japanese and the US markets are closed on Monday due to their respective national holidays.

Gold price technical analysis: Daily chart

Oversold Relative Strength Index (RSI) conditions on the daily chart saved the day for Gold buyers but it remains to be seen if the recovery will be sustained going forward.

The Bear Cross, represented by 100-Daily Moving Average (DMA) having crossed the 200 DMA from above, continues to pose a challenge to the upswing in Gold price.

On the upside, Gold buyers meed to yield a daily close above the key $1,850 level. Further up, the Gold price could challenge bearish commitments at the September 28 and 29 highs of $1,880. At that level, the downward-sloping 21 DMA hangs around.

Alternatively, the immediate support is seen at the intraday low of $1,833, below which the crucial support at the $1,810 level will be retested. The $1,800 threshold will be the next relevant support level to beat for Gold sellers, opening floors toward the psychological level of $1,750.