#Middle East Situation# #Gold Technical Analysis# On Tuesday, September 17, under pressure from stronger-than-expected US retail sales, spot gold fell sharply to nearly $2,560 per ounce, but then gold prices rebounded significantly from the lows and closed around $2,570 per ounce. In early trading on Wednesday, the price of gold rebounded further to around $2,475 per ounce. Analysts pointed out that the Middle East conflict could escalate, stimulating safe-haven buying and causing gold prices to rebound from the lows.

FXStreet analyst Christian Borjon Valencia pointed out that the momentum of the gold price stalled after the release of strong US macroeconomic data. US retail sales exceeded expectations, and there was some improvement in industrial production in August, driving the US dollar index higher.

Valencia added that the confrontation in the Middle East has escalated, with Hezbollah accusing Israel of the recent explosion incidents. This news has provided support for safe-haven asset gold.

US retail sales in August increased by 0.1% month-on-month, exceeding expectations of a 0.2% decline. In addition, US industrial output in August rose by 0.8% month-on-month, rebounding from the previous month's contraction of -0.9%.

After the release of US retail sales data, the price of gold fell to a low of $2,560.64 per ounce during the New York session.

The subsequent rebound in gold prices helped narrow the intraday decline, and by the end of Tuesday's trading, the price of gold had fallen by 0.5% to $2,569.37 per ounce.

Potential escalation of the Middle East conflict

Valencia wrote that the Middle East conflict could escalate. Al Jazeera reported that Hezbollah in Lebanon accused Israel of a series of pager explosion incidents and said Israel would face a "fair punishment".

During the ministerial meeting of the caretaker government of Lebanon on the afternoon of September 17 local time, pager explosion incidents occurred in Beirut, as well as in the southeast and northeast of Lebanon.

Lebanon's Minister of Public Health, Abiad, said that the explosion has caused 9 deaths and approximately 2,800 injuries, with about 200 people in critical condition.

Hezbollah in Lebanon issued a statement stating that Israel is "fully responsible" for the pager explosions and vowed to take retaliatory action. In addition, the caretaker government of Lebanon also condemned the incident.

The US State Department spokesperson, Mathew Miller, stated that the United States was not involved in this incident and does not know who is responsible for it.

Hezbollah officials in Lebanon stated that the pager explosion incident constituted the "largest security loophole" to date.

Israeli Channel 14 reported that "senior Israeli military officials are preparing for the third Hezbollah war, and it is expected to begin immediately."

The US State Department stated that the United States "does not know about this operation and did not participate" in this attack. The Biden administration stated that they are "still gathering information."

The Wall Street Journal provided some preliminary details about this complex attack, and Lebanon and Arabs condemned it as a major "terrorist attack."

The Wall Street Journal reported, 'Informants said that the affected pagers came from a recent shipment received by the organization.' A Hezbollah official said that hundreds of militants have such devices and speculated that it may be malicious software that caused the explosions.

Israel has not made an official comment, but some reports from the region indicate that preparations for war are underway.

The Fed's decision is coming.

On Wednesday, investors will focus on the Federal Reserve's interest rate decision and Fed Chair Powell's press conference, which is expected to trigger a major move in the gold market.

According to the Chicago Mercantile Exchange's 'FedWatch' tool, there is a 63% chance of a 50 basis point rate cut by the Federal Reserve, while the probability of a 25 basis point rate cut is 37%.

Because gold does not yield interest, a low interest rate environment can lower the opportunity cost of investing in gold, making it more favorable.

Phillip Streible, Chief Market Strategist at Blue Line Futures, said that the market is already pricing in a 50 basis point rate cut by the Federal Reserve, which is why the price of gold is so high. If the Fed ultimately only cuts rates by 25 basis points, the price of gold will fall.

Goldman Sachs Group Inc. said that if the Federal Reserve decides to cut rates by only 25 basis points this week, the price of gold may experience a slight pullback in the short term.

Investors still have differences in opinion on whether the Fed will start its easing cycle with a 50 basis point rate cut this week, or as Goldman Sachs expects, a more moderate 25 basis point cut.

Goldman Sachs analysts said: "Goldman Sachs economists expect the Fed to cut interest rates by 25 basis points on Wednesday, and in this basic scenario, the gold price may experience some tactical retracement."

However, Goldman Sachs also pointed out that with the inflow of funds into gold ETFs, the gold price is expected to rise to a record high.

How to trade gold?

FXStreet analyst Christian Borjon Valencia pointed out that despite the pullback in gold prices, there is still an upward bias. Gold is about to form a three-candlestick pattern called the Evening Star, a bearish chart formation. In the short term, momentum favors the sellers, with the relative strength index (RSI) declining and breaking below the previous peak level, indicating bearish strength.

In this case, the gold price may test the psychological level of $2550 per ounce. Once this level is breached, the next target will be the high point of $2531 per ounce on August 20, and then aim for the low point of $2485 per ounce on September 6.

Valencia added that on the contrary, if buyers push the price to the historical high of $2589 per ounce, the upward trend in gold will resume. If this high is broken, it is expected that the gold price will continue to rise to the psychological levels of $2600 per ounce, $2650 per ounce, and $2700 per ounce.

Spot gold reported at 07:53, spot gold reported at $2574.31 per ounce.