Spot gold fell below $3,900 per ounce last Friday (October 30), dropping more than 3% in a single day, marking the first close below $3,900 since last October; spot silver plunged as much as 6.0% intraday.
In the short term, gold may continue to trade under pressure, with this week's focus on Tuesday's U.S. midterm elections and Friday's October nonfarm payrolls and unemployment rate.
This round of decline is the result of four converging forces. First, the Federal Reserve paused rate hikes but maintained its hawkish stance. The Fed kept rates unchanged at 3.75%-4.00% at its October meeting, with the vote result continuing to show internal divisions, as two members, Cook and Hammack, advocated for immediate rate increases. The statement upgraded its economic assessment to "strong," and September PCE still stood at 3.6%. The market promptly priced in the possibility of another rate hike at the December meeting, pushing nominal and real interest rates higher and raising the holding cost of gold.
Second, the "Middle East geopolitics-oil prices-inflation" chain continues and shows a worsening trend. Restrictions in the Strait of Hormuz, escalation in the Bab-el-Mandeb Strait and the Red Sea, attacks on Saudi oil pipelines, the deadlock in U.S.-Iran negotiations, and ongoing Houthi-Saudi conflicts have pushed oil prices above $100 per barrel and diesel prices to record highs, driving up market inflation expectations and in turn reinforcing tightening expectations.
Third, liquidity-driven selling has re-emerged. A sharp selloff in U.S. tech stocks (Intel's disastrous guidance and Amazon's surging capital expenditure) triggered concerns over AI returns, forcing institutions to sell other risk assets to meet margin calls. Historically, gold also tends to become a selling target in such scenarios.
Fourth, long positions exited amid uncertainty. With gold's upward momentum stalling, the break below a key psychological level triggered programmatic stop-losses, amplifying the decline.
The rapid plunge in gold prices that triggered batch stop-losses, in my view, was a concentrated clearing of stop-loss orders rather than a complete reversal of fundamental trends. There is a possibility of a rebound in November, with two core anchors: the midterm elections and the December rate path.
From the midterm election perspective, the results will directly reshape market pricing of U.S. fiscal expansion, trade, and geopolitical policy. If Congress falls into divided government, subsequent large-scale fiscal stimulus will be harder to implement, aggregate demand will cool marginally, expectations of persistently rising inflation will weaken, and long-end U.S. Treasury yields are likely to pull back, giving gold room to recover. If the ruling party gains an advantage, the market will re-trade deficit expansion and inflation stickiness, keeping upward pressure on rates and limiting the rebound's height. Meanwhile, policy uncertainty before the elections itself brings a temporary safe-haven premium, but such rebounds are more about risk premium repair and are pulse-like moves whose sustainability depends on how election results shape expectations for subsequent White House policy.
Additionally, the core driver of gold's earlier decline was the expectation of one more Fed rate hike this year, and the market has already priced in a high probability of another 25bp hike in December. Even if a December hike materializes, if the Fed signals at its meeting that this is the "end point of this hiking cycle," the market will quickly trade the end of the tightening cycle and bring forward rate cut expectations, forming a classic "bad news exhausted" rebound. Conversely, if inflation rebounds again and December rate hike expectations strengthen further, the technical rebound after this oversold condition will only be a brief repair, and prices will come under pressure again after the bounce.
Overall, gold has rebound opportunities, but in the short term it is still better viewed as a tactical repair rather than a trend reversal. The rebound window is concentrated in the data observation period from the election outcome to the December FOMC meeting, and it is necessary to continuously track how inflation and employment data revise rate pricing.
Comments