Gold prices rebounded after a steep correction in October, with short-term market sentiment showing signs of recovery. GF Securities maintains a long-term bullish stance on gold, citing three key drivers:
1. **Macro Narrative: Debt Crisis May Reshape Global Order** The U.S. fiscal deficit and debt levels have expanded significantly since the pandemic, reaching historic highs with increasingly dispersed ownership. The widening twin deficits compel the U.S. to externalize crises, coinciding with rising global economic policy uncertainty and geopolitical risks. If unresolved, gold and technology sectors could sustain upward momentum in the medium to long term.
2. **Fundamentals: Declining Real Rates Provide Marginal Support** Although the negative correlation between real interest rates and gold prices weakened post-2022, it persists. The Fed’s dovish December rate cut and balance sheet expansion, coupled with persistent monetary easing and rebounding inflation, reinforce real rates as a key support for gold.
3. **Capital Flows: ETF Inflows and Central Bank Demand Remain Catalysts** - **ETF Demand**: Global gold ETF inflows continued in Q4 2025, with Asian investors replacing North America as the primary driver. Holdings hit record highs, with annual net purchases exceeding 700 tons—potentially setting a new annual inflow record. - **Central Bank Buying**: Structural shifts like de-dollarization and geopolitical fragmentation sustain robust central bank gold accumulation. Modeling suggests ETF inflows propel price rallies while central bank purchases underpin floors.
**Recent Gold Trends**: Spot gold (London) peaked above $4,380/oz in August, driven by derivatives positioning and ETF inflows. Post-October correction, indicators suggest: - Derivatives and ETF trends remain intact. - Gold option implied volatility has normalized to 6-month averages, easing overbought pressure. - Geopolitical tensions exhibit a "patchwork of de-escalation and hotspots," modestly lifting safe-haven demand.
**Trading Outlook**: Despite elevated levels, October’s correction mitigated short-term risks. Key near-term catalysts include November nonfarm payrolls and the scale of Japan’s rate hikes, presenting tactical opportunities in London gold.
**Risks**: - ETF tracking deviations. - Geopolitical shocks exacerbating inflation. - Tighter-than-expected liquidity (delayed Fed cuts/less bond yield decline). - Weaker domestic growth policies dampening economic recovery and index performance.
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