Before the weekend, international gold prices fell below a key pivot level, putting markets under clear pressure. Even as the U.S. 10-year Treasury yield slipped back below 5%, gold still could not halt its decline. Several market analysts interpreted the logic behind this round of gold selling from the perspectives of technicals, liquidity, Federal Reserve policy, and geopolitical conditions. Regarding the future direction, institutions have also formed divergent judgments.
Inflation and Liquidity Exert Double Pressure, Gold Suffers Heaviest Selloff in Six Weeks
Persistently high inflation has weighed on the gold bulls, and sticky inflation has forced the Federal Reserve to begin a tightening cycle, pushing up interest rates and real yields, which in turn raised the opportunity cost of holding non-yielding gold. Last Thursday, market funds poured into long-dated U.S. Treasuries for safety, and the 10-year Treasury yield moved lower, which in theory should have benefited gold, but technical selling and cross-asset liquidity pressure dominated the market. Spot gold fell 3.99% last week, the most violent decline since early June, with the selling mainly concentrated last Thursday. Ole Hansen, head of commodity strategy at Saxo Bank, said: "It is clear that this is currently a battle between short-term technical traders and long-term investors. Short-term funds are following the decline to short, but the underlying demand from long-term funds remains solid." He also said that market concerns about a liquidity crisis amplified the selling, and after gold fell below $4,065, a large number of stop-loss orders were triggered, with the next key support seen at $3,970. At the same time, he noted that speculative positions may have entered an extreme range, and after technical repair, gold prices could rebound quickly.
Institutional Views Diverge, Most Analysts Do Not See a Bear Market Turn
Roukaya Ibrahim, chief commodities strategist at BCA Research, said last week's gold decline was disappointing but did not represent the start of a new deep downtrend. She believes last Thursday's drop was driven by a special event, rooted in tightening cross-asset liquidity across the entire market rather than a fundamental change in gold's fundamentals, and that panic near key support levels further amplified the decline. Ibrahim added that gold still showed resilience despite macro headwinds, and this round of declines pushed gold into oversold territory, with its deviation from the 200-day moving average returning to late-July levels, when gold found a stage low and then rebounded. However, a stronger dollar and stubborn inflation will limit rebound room, and she judges that gold is likely to remain range-bound, making it difficult to see either a one-sided surge or a sustained deep decline. Neil Welsh, head of metals at Britannia Global Markets, likewise believes this decline was merely a change in market trading structure and did not alter the long-term investment logic for gold. He warned that if stocks correct further and investors are forced to cash out to meet margin calls, gold could face a new round of selling pressure; but many funds remain bullish, and combined with continued gold purchases by central banks, this can provide support for gold prices.
Fed Policy Path Becomes Core Variable, Multiple Central Banks Face Rate-Decision Week
Rob Haworth, senior investment strategist at U.S. Bank Wealth Management, believes the Federal Reserve's tightening cycle continues to support the dollar, and gold prices will remain under pressure. He said: "The Fed's attitude toward fighting inflation is very resolute, but it will not take aggressive rate hikes." The market expects the Fed's policy meeting this week to leave rates unchanged, but to retain the option of a December hike. The bank's economists expect further hikes in December and March of the following year. This gradual tightening path, even if Treasury yields no longer rise sharply, will still support the dollar and suppress gold's upside room. This week, in addition to the Federal Reserve, the Bank of Canada, the European Central Bank, and the Bank of Japan will also hold monetary policy meetings one after another. Global central bank policy will land in a concentrated period, raising the risk of market volatility.
Middle East Situation Affects Liquidity, Year-End Market Still Has Rebound Opportunities
Simon-Peter Massabni, head of business development at XS, said that to ease downward pressure on gold prices, the Middle East needs to form a sustainable stable situation and avoid repeated shocks to the energy market. Middle East tensions not only push up U.S. inflation and Treasury yields, but also drain liquidity from the Middle East and Asia, and the current geopolitical situation is unlikely to improve in the short term. Ole Hansen added that the continued accumulation of net short positions by hedge funds actually sets the stage for a rapid rebound in gold later, but gold needs to rise above $4,230 to confirm that this round of adjustment has ended. After late-November and December futures contracts expire, position and liquidity pressure is expected to ease, and with support from diversification needs and fiscal and geopolitical risks, gold still has a chance for a year-end rebound.
Conclusion
Short-term liquidity panic and the Federal Reserve's relatively tight policy expectations dominate gold price movements, and institutions generally do not take a bearish view on gold's long-term logic. Amid multiple intertwined macro and geopolitical variables, gold is likely to remain in range-bound contention in the short term, and the final direction still depends on central bank signals and further developments in the Middle East situation. Spot gold weekly chart Source: Yihui Tong. At 11:36 Beijing time on October 26, spot gold was quoted at $4,011.97 per ounce.
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