Gold is being pulled in two directions: China continues buying physical gold and refining capacity is tightening, with the long-term demand base fundamentally unchanged, while financial investors have cut positions after extreme volatility and are temporarily unwilling to take on risk again. UBS's latest Bullion Report describes the current market as "structural support, tactical caution." The bank's precious metals trading team believes gold still attracts buying when prices approach the lower end of the recent trading range, but weak investor confidence makes any rebound difficult to sustain. For gold bulls, the key is not just whether prices can hold near $4,000, but whether the market can rebuild upward momentum.
UBS technical strategist Jason Perl has turned bullish on gold's technical outlook, but with an important condition: prices must break convincingly above $4,082.80 to further confirm a rebound. Speculative funds have retreated en masse, yet gold buying has not completely disappeared. Trading data from October 22 revealed the concentration of the recent gold selloff. UBS electronic trading data showed that dollar-denominated spot gold volume that day accounted for roughly 26% of the entire week's total turnover. Prices were under pressure for most of the day and fell below $4,050 per ounce for the first time since August. Major client groups all reached their weekly highs in trading activity that day. Asset managers concentrated about 30% of their weekly turnover into that single session. Such concentrated activity reflects rapid position adjustment. Multiple investor groups trading almost simultaneously suggests selling pressure stemmed more from broad risk reduction than from a collective rejection of gold's long-term value.
After positions were heavily cut, the market quickly turned quiet. UBS noted that volatility-focused investors mostly chose to step aside, seeing few opportunities to establish effective positions. Discretionary traders are also increasingly reluctant to re-expand risk exposure before year-end. This means the current problem is not entirely that buyers have vanished, but that would-be buyers are temporarily unwilling to take on risk. There is an important distinction: genuine buyer exhaustion could leave prices persistently unsupported, while if buyers are merely waiting for clearer signals, the market could still recover once position adjustments end. UBS observed that whenever prices approach the lower end of the recent range, some buying still emerges. This has helped prevent the selloff from turning into a more decisive breakdown, but it is not enough to drive a sustained rebound. In other words, bears have not fully seized control, and bulls have not regained the confidence to chase gains.
Chinese physical demand persists, refining capacity tightens
In contrast to sluggish trading in New York financial markets, Asian physical gold markets continue to show strong demand. UBS reported that 1-kilogram gold bars in the Chinese market continue to see buying, with larger bars also in demand. This wave of purchasing began around early October, earlier than the typical start UBS has observed in recent years. Physical gold buyers make decisions very differently from high-frequency traders or hedge funds. Financial investors can close positions quickly, while physical buyers focused on long-term holding care more about availability, physical premiums, and whether delivery can be secured. UBS observed that as demand for 1-kilogram bars continues to grow, refining production orders are becoming harder to arrange, and available refining capacity is increasingly tight. This creates different pictures in the physical and financial markets: gold on electronic trading venues may face pressure from speculative retreat, while physical gold of specific specifications and delivery locations remains sought after by buyers. The two situations are not contradictory but reflect market behavior under different investment horizons and funding needs.
Broader structural demand has also not notably disappeared. Central bank reserve diversification, geopolitical uncertainty, and investors seeking alternatives to the dollar remain important components of gold's long-term investment thesis. But the fact that physical demand can absorb some selling and provide price support does not mean it can immediately drive a sharp rally. To generate sustained upward momentum, the market still needs financial investors to rebuild positions.
UBS turns technically bullish, $4,082.80 becomes key threshold
The most important change in UBS's report this week came from Perl's DeMark technical analysis of gold. Previously, Perl held a cautious view, believing the market needed to complete an ABC correction pattern and meet corresponding technical conditions before making a more positive judgment. UBS said that when gold touched $3,996.10 per ounce on October 23, it had met the minimum requirements of that correction pattern. As a result, Perl has turned bullish on the technical outlook. However, completing a correction pattern does not equal confirmation of a sustained rebound. Perl noted that gold first needs to break above the $4,082.80 upside threshold. If prices can convincingly break that level, the rebound outlook would improve further, and the market could begin focusing on higher technical targets. For investors trading amid complex macroeconomic signals and shifting sentiment, this threshold provides a relatively clear observation standard. Conversely, if gold fails to reclaim $4,082.80, especially if institutional investors sell again, the market could still retest support zones.
Silver weaker, downside risks remain
UBS is clearly less optimistic on silver than on gold. The bank maintains a neutral technical view on silver and notes that short-term risks still lean toward further weakness. Silver prices have recently been unusually sensitive to headlines and position changes. Last Friday, silver briefly approached $53 per ounce before recovering some losses, but electronic trading volume that day was highly concentrated. UBS data showed that asset managers concentrated more than 60% of their weekly silver turnover into last Friday. Banks and hedge funds also showed unusually concentrated trading activity that day, reflecting high sensitivity to position changes. Perl noted that silver needs to reclaim $56.27 to reduce current downside risk. Before that, support levels near $53.02, $52.31, and $49.62 per ounce remain worth watching.
Trading environment quietens, market awaits new catalysts
The UBS report also showed that although investors are reluctant to establish directional positions, normal trading liquidity in the gold market has not deteriorated in tandem. Between October 19 and 24, the average best bid-ask spread for spot gold narrowed by about 5% compared with the average in the prior period of October, and by about 11% compared with September. This indicates that the main difficulty facing the market is not that dealers are unwilling to provide quotes, nor that execution conditions for normal trading have clearly worsened, but rather that investors lack the willingness to take directional risk. As year-end approaches, some portfolio managers may prefer to protect gains already achieved this year; others who have just recovered from recent losses are also unwilling to endure severe volatility again. The market may therefore remain in a relatively narrow trading range for some time until new catalysts emerge to break the existing pattern.
U.S. monetary policy remains an important factor. If the market begins to expect further monetary tightening, rising interest rates could weaken the appeal of gold, which generates no interest income. At the same time, continued active Chinese physical gold demand provides another supporting force. UBS also believes broader geopolitical and political uncertainty could affect gold's trajectory, but its trading team remains cautious about directly deriving gold price direction from political developments. The real question worth watching is what factors could prompt investors to rebuild positions after the recent wave of liquidation. This could come from a more favorable monetary policy outlook, a clear technical breakout, or renewed market belief that the broader financial deleveraging process is nearing its end. Currently, physical gold buyers and financial traders are still making decisions on different time horizons. China's physical demand, tightening refining capacity, and long-term asset diversification needs provide structural support for gold; but whether short-term prices can sustain a rally still depends on whether the market can restore its willingness to take risk.
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