Gold price rebounds to $2,650 as Middle East conflict escalates

• Gold rises from $2,638 to $2,659, fueled by escalating tension between Israel and Iran and increasing US Treasury yields.
• US labor market data softens; however, ISM Services PMI reflects better business activity in September.
• US Dollar Index (DXY) up 0.35%, 10-year Treasury yields climb to 3.84%, tempering market expectations for big November rate cut.

Gold price recovers in the mid-North American session on Thursday after hitting a daily low of $2,638. The golden metal rose on rising fears over the Israel–Iran conflict along with a stronger US Dollar. In addition, bets that the Federal Reserve (Fed) will ease policy aggressively faded and boosted US yields. The XAU/USD trades at $2,659.

Wall Street trades with losses amid rising geopolitical risk. The market mood remains downbeat as Israel advanced its military into Lebanon despite Iran’s significant missile attack on Tuesday. Meanwhile, US President Joe Biden commented publicly that he discussed attacking Iranian oil facilities with Israeli officials. After the headline, bullion prices rose toward $2,650 and above.

Earlier, US data revealed that the labor market continued to soften. The US Department of Labor revealed that the number of people filing for unemployment benefits rose above estimates. Last but not least, the Institute for Supply Management (ISM) revealed that business activity, measured by the ISM Services PMI, improved in September compared to August’s number.

Other data showed that Factory Orders for August contracted, while traders eye the release of the latest US jobs report on Friday, which is projected to spur volatility in the financial markets.

Meanwhile, Fed officials have crossed the newswires. The Atlanta Fed’s Raphael Bostic stated that the natural employment rate has shifted, and it could be lower. Chicago Fed President Austan Goolsbee said the latest inflation numbers are at the Fed’s target, while the labor market is at full employment.

Regarding lowering rates by 50 or 25 basis points, Goolsbee said it is not as important as getting rates down over the next 12 months to get to neutral.

US Treasury yields continued to rise as traders trimmed their odds for a 50 bps cut in November. The US 10-year Treasury note yields 3.84%, up five basis points. At the same time, the US Dollar Index (DXY), which tracks the buck’s performance against a basket of six peers, gains 0.35% to 101.95.

Daily digest market movers: Gold prices maintain gains as US data hints further easing

• US Initial Jobless Claims for the week ending September 28 rose from 219K to 225K, exceeding estimates of 220K.
• The ISM Services PMI for September expanded from 51.5 to 54.9, while Factory Orders for August contracted by -0.2%, missing the estimate of 0% and down from the previous month's 4.9% increase.
• On Friday, Nonfarm Payrolls are expected to show that the economy added 140K jobs in September, slightly less than the 142K jobs created in August, with the unemployment rate forecast to remain unchanged.
• Market participants have placed the odds of a 25 bps rate cut at 66.7%. According to the CME FedWatch Tool, the chances of a larger 50 bps cut have decreased to 33.3%.

XAU/USD technical analysis: Gold price hovers near $2,650-60

The Gold price uptrend is intact, although registered losses see it edging below $2,650. The Relative Strength Index (RSI) shows momentum remains bullish despite turning flat during the last two trading days.

With that said, XAU/USD might trade within familiar levels. If XAU/USD slides underneath $2,650, this would pave the way for further downside, exposing the September 30 daily low of $2,624, followed by the September 18 peak at $2,600. A breach of those levels and the 50-day Simple Moving Average (SMA) would be up next at $2,519.

On further strength, if it clears the all-time high of $2,685, it could extend its gains to $2,700.