After a series of heavy losses, gold has finally caught a breather. The dramatic shift in buying and selling forces over just two trading sessions reflects the complex landscape currently facing the gold market.
The primary driver behind this rebound came from the crude oil market. On Monday (November 2), international oil prices suffered a crash-like decline, with Brent crude futures settling 7.63% lower at $104.77 per barrel, while U.S. crude futures fell 7.36% to close at $96.46 per barrel. The direct trigger for the oil price collapse was a signal of easing tensions in the Middle East 鈥?Iranian Foreign Ministry spokesman Baghaei said on November 2 that if the United States agrees to fulfill Iran's demands, the relevant plan could be launched within two days at the earliest, security in the Strait of Hormuz would be restored, and Iran-U.S. negotiations would begin accordingly. Trump said at an event in Washington the same day that Iran hopes to reach a deal to end the conflict and that an agreement is "possible." Expectations for a de-escalation of geopolitical tensions rapidly intensified.
The pullback in oil prices directly lowered inflation expectations, which carries dual implications for the gold market: on one hand, the short-term urgency of inflation-hedging demand has somewhat diminished; on the other hand, and more critically, reduced inflationary pressure means the necessity for aggressive Fed rate hikes has marginally weakened 鈥?and the latter is the core force driving gold's rebound.
Echoing this were subtle shifts in the dollar and interest rate expectations. The U.S. dollar index, which measures the greenback against six major currencies, fell 0.16% on November 2, closing at 101.719 in late foreign exchange trading. The oil price decline dragged down U.S. Treasury yields, which in turn weighed on the dollar, reducing the holding cost of dollar-denominated gold and giving bulls some breathing room. According to CME Group's FedWatch tool, traders' expectations for a December Fed rate hike fell from a previous 80% to around 75%. Although this probability remains at a relatively high level, the marginal cooling was enough to give long-suffering gold bulls an excuse to bid prices higher.
It is worth noting that the U.S. October manufacturing PMI rose further to 55.5 from 54.5 in September, with the input price sub-index still at elevated levels, indicating that the resilience of the U.S. economy remains intact and the Fed's overall tightening direction has not reversed 鈥?a shadow that continues to hang over gold's rebound.
From a technical perspective, Monday's rebound bore the clear hallmarks of an oversold correction. The gold Relative Strength Index briefly fell below 30 into oversold territory last Friday before recovering to around 37 on Monday, meaning some of the short-term excessive selling pressure has been released. Last Friday, tech stocks and artificial intelligence sectors faced a wave of selling, with margin calls forcing investors to sell liquid assets like gold to raise cash. This passive deleveraging artificially depressed gold prices in the short term while also storing up energy for the subsequent technical rebound. After the weekend, as margin call pressure eased, some shorts chose to take profits, and technical buying flowed in, together producing a nearly 2% single-day gain.
However, whether this rebound can be sustained faces a real test this week. U.S. midterm elections will be revealed on Tuesday, with markets widely expecting Democrats may retake the House of Representatives, though control of the Senate remains uncertain. The election results' impact on gold runs along a two-way path: if Democrats control the House and fiscal policy becomes deadlocked, expectations for large-scale stimulus would cool, potentially weighing on gold prices; but the uncertainty brought by political gridlock itself could in turn boost safe-haven demand for gold.
At the same time, the U.S. October nonfarm payrolls report due this week, along with interest rate decisions from central banks in the U.K., Australia, Norway, and Sweden, will together form a dense calendar of risk events this week. With the probability of a December Fed rate hike still above 70% and manufacturing data remaining resilient, gold's medium-term outlook is far from clear. A short-term oversold rebound has already occurred, but the height and sustainability of the rebound still need to await new directional guidance from election results and nonfarm payroll data.
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