Gold is locked in a tug-of-war between bulls and bears near the $4,000 threshold, with the market awaiting this week's Federal Reserve interest rate decision to provide directional guidance.
On Tuesday (October 26), spot gold came under pressure, briefly dipping below the $4,000 per ounce level during intraday trading, as its rally stalled following a 0.5% gain in the previous session. Since September, international spot gold has been steadily declining, with cumulative losses exceeding 3% so far this month.
The core logic supporting gold prices lies in the fact that the market is currently pricing in only about a 10% probability of a Fed rate hike this week, and rising rate cut expectations have provided a fundamental floor for gold. However, multiple pressures are converging simultaneously: liquidity selling triggered by the unwinding of AI trades has spilled over into gold, and expectations of eased US-Iran diplomacy have pushed oil prices down for two consecutive days, eroding gold's appeal as a safe-haven and inflation-hedge asset.
Suki Cooper, Global Head of Commodities Research at Standard Chartered, warned that the $4,000 line is a "critical juncture," and if gold prices fail to find technical support at $3,886 per ounce, downside room will open up rapidly. This statement highlights the fragility of current market sentiment—the divergence between short-term capital flows and medium-to-long-term monetary policy expectations is making gold's trajectory increasingly difficult to assess.
Rate Cut Expectations Provide Support, but Hike Risks Remain
Over the past month, market expectations for the Fed's rate path have experienced notable fluctuations, adding uncertainty to gold's recent performance.
Previously, better-than-expected inflation data briefly drove traders to significantly bet on an October rate hike, but subsequent comments from Fed officials cooled the market, causing those bets to recede. Currently, the market is pricing in only about a 10% probability of a rate hike this week, and this expectation has provided阶段性 support for gold—keeping rates unchanged means the opportunity cost of holding a non-yielding asset will not rise further.
However, persistently elevated energy prices are still driving the market to bet on another rate hike within the year. Higher borrowing costs directly suppress gold, since gold itself generates no interest income, and rising rates amplify its holding cost. This potential risk makes it difficult for bulls to aggressively chase the rally.
AI Trade Unwinding Hits Gold, Turning It into a "Liquidity ATM"
Last week's sharp selloff in tech stocks unexpectedly became another important source of pressure on gold.
When tech stocks came under selling pressure, investors chose to sell gold to raise liquidity to cover losses in other positions, dragging gold prices into the broader unwinding wave of AI trades. This mechanism caused gold to fall to its lowest level since mid-July last Friday, diverging from its traditional safe-haven characteristics.
This week, as enthusiasm for AI trades rekindled and stock markets extended gains, this selling pressure has eased somewhat, but whether gold can regain its footing on the back of this remains to be seen. The disturbance from short-term capital flows and the divergence from medium-to-long-term monetary policy expectations are precisely the core contradictions making it difficult for gold prices to form a unified direction.
Falling Oil Prices Weaken the Inflation-Hedge Narrative
Expectations of eased US-Iran diplomacy have brought downward pressure on oil prices, indirectly affecting the demand logic for gold.
Oil prices fell for a second consecutive day, against the backdrop of a new round of diplomatic efforts that has diminished market concerns about an escalation of the US-Iran conflict. Falling energy prices mean inflation pressures are marginally easing, and gold's appeal as an inflation-hedge asset diminishes accordingly.
Suki Cooper noted in a research report that "stubbornly high energy prices keep inflation risks in focus, and the possibility of further rate hikes also weighs on gold." This statement reveals the dilemma gold currently faces: when oil prices are high, rate hike expectations suppress gold prices; when oil prices fall, inflation-hedge demand weakens in tandem.
$3,886 Is the Key Technical Line of Defense
Amid mixed fundamental signals, the holding or breaking of technical support levels carries important signaling significance for market sentiment.
Suki Cooper explicitly pointed out that $3,886 per ounce is the key technical support level for gold currently, and once this level is breached, support will "fade rapidly." The $4,000 round number carries psychological significance, and its breach or defense will directly influence the market's judgment of short-term trends.
This week's Fed interest rate decision will be the key variable in breaking the current deadlock, and any changes in its wording or dot plot could serve as a direct catalyst for gold to break through or fall below key levels.
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