On Tuesday (September 17th), spot gold fell sharply to nearly $2560 per ounce due to stronger than expected US retail sales, but then the gold price clearly broke away from the low point and closed around $2570 per ounce. In early trading in Sanya, gold prices further rebounded to around $2475 per ounce. Analysts point out that the Middle East conflict may escalate, triggering safe haven buying to stimulate gold prices to rebound from their lows.

Analyst Christian Borjon Valencia pointed out that after the release of strong US macroeconomic data, the rise in gold prices stalled. US retail sales exceeded expectations, and industrial production improved in August, driving up the US dollar index.

Valencia added that geopolitical tensions in the Middle East have escalated, with Hezbollah accusing Israel of causing the recent bombings. This news provides support for safe haven asset gold.

Retail sales in the United States increased by 0.1% month on month in August, better than the expected decrease of 0.2%. In addition, industrial output in the United States increased by 0.8% month on month in August, rebounding from a contraction of -0.9% last month.

After the release of US retail sales data, gold prices fell to a low of $2560.64 per ounce during the New York trading session.

The subsequent rebound in gold prices helped to narrow the intraday decline. As of Tuesday's close, gold prices fell 0.5% intraday to $2569.37 per ounce.

Middle East conflict fears escalation

Valencia wrote that the Middle East conflict may escalate. Al Jazeera reported that Hezbollah in Lebanon accused Israel of causing a series of pager explosions and said that Israel will receive "fair punishment".

On the afternoon of September 17th local time, during the ministerial meeting of the Lebanese caretaker government, pager explosions occurred in Beirut, the capital of Lebanon, as well as in many parts of southeastern and northeastern Lebanon.

Lebanese Public Health Minister Abuyad said that the explosion has caused 9 deaths and about 2800 injuries, of which about 200 are in critical condition.

Hezbollah in Lebanon has issued a statement stating that Israel bears "full responsibility" for the pager explosion and has vowed to take retaliatory action. In addition, the Lebanese caretaker government also condemned the incident on that day.

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.

Lebanese Hezbollah officials have stated that the pager explosion constitutes the 'biggest security breach to date'.

Israel's Channel 14 reported that "senior military officials are preparing for the third Hezbollah war, which is expected to begin immediately

The US State Department stated that the US was "unaware of this operation and did not participate" in the attack. The Biden administration stated that it is still collecting information.

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

The Wall Street Journal wrote, "Insiders say that the affected pagers came from a batch of new goods received by the organization in recent days." A Hezbollah official said that hundreds of militants possessed such devices, and he speculated that malicious software may have caused the explosions of these devices.

Israel has not yet released official comments, but some reports from the region indicate that preparations for war are underway.

The Federal Reserve's decision is coming

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

According to the Chicago Mercantile Exchange's (CME) "Federal Reserve Watch" tool, there is a 63% chance of a 50 basis point rate cut by the Federal Reserve, and a 37% chance of a 25 basis point rate cut.

Because gold does not yield interest, a low interest rate environment can reduce the opportunity cost of investing in gold, which is more favorable for it.

Phillip Streible, Chief Market Strategist at Blue Line Futures, stated that the market has already reflected a 50 basis point rate cut by the Federal Reserve in prices, which is why gold prices are so high. If the Federal Reserve only cuts interest rates by 25 basis points in the end, gold prices will fall.

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

Investors are still divided on whether the Federal Reserve will start its easing cycle this week with a 50 basis point rate cut or, as Goldman Sachs expected, a more moderate 25 basis point rate cut.

Goldman Sachs analysts said, "Goldman Sachs economists expect the Federal Reserve to cut interest rates by 25 basis points on Wednesday, and in this basic forecast scenario, there may be some tactical pullback in gold prices

However, Goldman Sachs also pointed out that with the influx of funds into gold ETFs, gold prices will subsequently rise to record highs.

How to trade gold?

Analyst Christian Borjon Valencia pointed out that although gold prices have fallen, there is still an upward trend. Gold is about to form a three candle shaped Evening Star - a bearish chart shape. In the short term, momentum is favorable for sellers, and the Relative Strength Index (RSI) has fallen below its previous peak level, indicating the strength of bears.

In this situation, the gold price may test the psychological barrier of $2550 per ounce. Once the position is lost, the next target will be the August 20th high of $2531 per ounce, and then aim for the September 6th low of $2485 per ounce.

Valencia added that, on the contrary, if buyers push the price to a historical high of $2589 per ounce, the upward trend of gold will recover. If it breaks through this high level, it is expected that the gold price will further rise to psychological levels of $2600/ounce, $2650/ounce, and $2700/ounce.