Gold is experiencing a textbook-style breakdown. All the macro factors that should have pushed prices higher appeared at the same time, yet gold moved in the opposite direction, falling below the key $4,000 round number last Friday. Goldman Sachs' latest analysis reveals the real drivers behind this unusual selloff and warns that the market structure has not yet cleared, leaving downside risks intact.
Last Friday, December gold futures closed at $3,898.90 per ounce, down 3.3% on the day, with spot gold touching its lowest level since October 2025, having fallen roughly 30% from its record high near $5,600 in January. Goldman Sachs' commodities team noted in its weekly report that the break below $4,000 occurred against a backdrop of weekend geopolitical risk and an overall contraction in risk appetite, with CME volume surging 80% from the prior day and GLD ETF single-day turnover reaching about $4 billion, ranking seventh among all ETFs that day.
Goldman analyst Robert Quinn noted in the report that since September 22, the market has sold a cumulative $19.5 billion in gold futures positions, with the pace of selling continuing to accelerate. Notably, the main sellers were not the hedge funds typically blamed, but rather funds from the "other" and non-reportable categories, which together accounted for roughly 95% of total selling. Meanwhile, bearish sentiment in the options market has risen to the 85th percentile of the past year, with the market actively positioning for further declines.
The core contradiction in this selloff is that the structural buying that supports gold — central banks — remains present and continues to step in, but their buying pace is far slower than the current selling speed. Price-insensitive buyers have met equally price-insensitive sellers: central banks accept whatever the price, while sovereign nations and other large holders, needing to meet liquidity requirements, dump gold — their most liquid reserve asset — regardless of price. In this tug-of-war, the faster side temporarily has the upper hand.
Scale and Pace of Selling: Five Consecutive Weeks, $19.5 Billion
According to Goldman's analysis of CFTC positioning reports, speculative gold selling accelerated further during the October 20-27 observation window. Managed money, other categories, and non-reportable categories collectively sold $8 billion, marking the fifth consecutive week of bearish fund outflows, with cumulative five-week selling reaching $19.5 billion, including $5.2 billion in position closures and $2.8 billion in new shorts.
In terms of scale, at roughly $4,000 per ounce, $19.5 billion corresponds to about 4.9 million ounces, or approximately 150 tonnes of gold. Goldman's own central bank gold purchase tracking model shows that official sector buying is currently running at about 85 tonnes per month. In other words, the speculative selling over five weeks equals nearly two months of central bank purchases.
More noteworthy is the composition of sellers. Hedge funds (managed money) were almost absent from this selloff, with the "other" and non-reportable categories contributing about 95% of the selling, of which the "other" category's long liquidation reached $4 billion, the single largest source. The CFTC's "other" category includes family offices, proprietary traders, and other large non-hedge-fund accounts — "slow money" with lower turnover and stickier positions.
All Macro Signals Have Failed: The Shadow of Sovereign Liquidity Management
What makes this gold decline unusual is that all traditional bullish factors were in place. During the observation window, the U.S. 10-year real yield fell 11 basis points, equities came under pressure, and Middle East geopolitical tensions persisted — three historically reliable catalysts for gold. Yet gold still fell 1.6% during this period.
Goldman's Robert Quinn attributed part of the reason to "concerns about sovereign liquidity management" and a stronger dollar. Brent crude rose 4.1% over the same period, while the dollar index gained 0.6%. Goldman noted that the rolling 6-month correlation between "other" category long positions and both the dollar and Brent crude is "moderately negative" — meaning when oil and the dollar strengthen, these longs tend to close out.
The phrase "sovereign liquidity management" points to a possibility that unsettles the market: as Brent crude continues to rise and regional conflicts persist, some oil-importing nations and even oil-exporting sovereign entities may need dollars more than they need gold, and gold happens to be the most liquid asset in their reserves. Goldman also noted that large amounts of physical gold have recently flowed to London — and gold bars flowing into London are precisely the bars that can be sold in the London market.
Positions Have Not Cleared: Downside Risk Remains
Goldman explicitly stated that this selloff is not over. As of October 27, the "other" category's long positions remained above the two-year median in both notional size and as a percentage of open interest. The ratio of this category's longs to open interest climbed to about 20% in mid-October, the highest in Goldman's one-year chart, and although it has since fallen to about 18% after the recent selling, it remains well above the February low of roughly 11-12%.
The COT data cut-off is October 27, and market conditions have deteriorated further since. Goldman data shows that from October 27 to 30, gold fell another 4.3%, with Brent crude rising a further 3.7% as the main drag, while declines in the dollar and real yields could no longer support gold.
At the ETF level, as of last Thursday, GLD's holdings remained only about 1% below their all-time high. Goldman estimates that even if all of Friday's ETF outflows came from position reduction, it would amount to only about 1 million ounces, while GLD's total holdings exceed 100 million ounces. This means potential selling pressure remains considerable.
Options Market: Bearish Sentiment at Yearly Highs
Signals from the options market are equally discouraging. According to Quinn's report, gold's 3-month implied volatility and the normalized 25-delta put/call skew have both risen, with the latter reaching the 85th percentile of the one-year ranking.
Goldman data shows the skew climbed sharply from about -10 in September to about +6, while 3-month implied volatility rebounded from around 19% near its 2026 low to above 21%. On Friday alone, implied volatility jumped 3.5 vol points, and two-week high-frequency realized volatility has run to 18.5. Six weeks ago in September, the market was scrambling to buy calls; now, the premium on puts has risen to the 85th percentile.
In response, Goldman's commodities trading desk said that "options and delta risk exposure are currently limited," that it is waiting for signals to re-enter, and that it has not deployed additional risk on the long side.
The Next Support Level and the Long-Term Logic of Structural Longs
Goldman's commodities trading desk views $3,850 as the next key support level, but acknowledges it is a "moving target" and admits that its earlier expectation that $3,950 would hold has been proven wrong. $3,850 is less than 1.5% below the current futures price of $3,898.90, and also below the $4,070 near-term floor set by Goldman's commodities research team last month in its "hawkish Fed downside scenario" — at which point the team believed sustained central bank buying would gradually raise that floor.
The structural logic supporting gold has not changed: central banks continue to buy, the de-dollarization trend has not reversed, and Goldman's research team maintains its end-2027 gold target of $5,400, believing official buying will be the main driver of achieving that target.
However, structural buying is slow, while the current selling is faster. With "other" category longs still above the two-year median, options skew at elevated levels, the trading desk standing pat, and the market pricing about a 75% probability of a December Fed hike, Goldman believes the path of least resistance remains an initial move lower — testing the $3,850 support with the possibility of breaking below it — before the window opens for central banks to buy the dip. This path would become even clearer if oil prices continue to rise within the "post-midterm election escalation window" that the commodities team is monitoring.
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