Gold speculative positioning has dropped to its lowest level since May. Last week, gold falling below $4,000 began to draw market attention, and a two-month downtrend has pushed prices close to oversold territory. Yet institutions believe conditions for a substantial short-term rebound may not yet be in place, with the market still caught in a tug-of-war between bullish technical indicators and bearish economic fundamentals, while persistent inflation and the potential for a stronger dollar could prevent any meaningful bullish momentum before year-end.
Fund sentiment turns pessimistic
Suki Cooper, head of global commodities research at Standard Chartered, noted in her latest precious metals report that global gold-backed exchange-traded products (ETPs) saw a fresh wave of outflows at the end of last week, ending a period of relatively strong investment demand. "Notably, the selling was not confined to gold assets, reflecting technical tightness and liquidity needs to meet margin calls or generate cash flow," she said. Looking at gold's price action, Cooper said the market needs to hold support at $3,886 per ounce. A sustained break below that level could expose the market to a deeper correction. The report said speculative investors have cut gold exposure for eight consecutive weeks, with profit-taking and short covering pushing positioning to its lowest since May. At current gold prices, at least 350 tonnes of ETP holdings have moved into loss-making territory, potentially leaving the market exposed to further liquidation risk.
Rukayat Ibrahim, chief commodity strategist at BCA Research, believes the recent selling pressure may be overdone, but that any potential rebound is unlikely to develop into a sustained trend. "My technical indicators suggest we have a window for a rebound, but macro variables still pose headwinds, so I lean toward the view that we could see range-bound trading in that environment," she said. Cooper wrote that with elevated energy prices continuing to stoke inflation pressure, there remains considerable downside risk, forcing investors to reassess expectations for U.S. monetary policy. "The key point is that as oil prices rise, inflation risk stays in focus, and the possibility of further rate hikes also weighs on gold, which needs to establish a floor."
The market expects less than a 10% probability that the Federal Reserve will hike rates at Wednesday's monetary policy meeting. However, investors see an 86% chance of a December rate hike after the U.S. midterm elections. Cooper noted that the U.S. 10-year Treasury yield has fallen below 5%, down from 5.3% earlier this month. Yet the decline in yields has offered little support to gold, with investors still focused on persistent inflation and the possibility of further monetary tightening. Meanwhile, the dollar remains a major headwind for precious metals. Standard Chartered pointed out that gold's three-month rolling correlation with the dollar remains at negative 47%, making the dollar one of the most consistent drivers of price action. Ibrahim likewise believes the fundamental outlook remains challenging, especially with persistent inflation pressure forcing the Fed to maintain a hawkish monetary policy stance.
$4,000 remains a key support level. A sustained break below that threshold could signal further weakness ahead. In recent months, gold's relationship with the dollar has mattered more than its relationship with real interest rates. Given that the dollar is expected to remain relatively strong through year-end, she sees limited room for a sustainable rebound in gold.
Long-term outlook stays positive
Despite near-term risks, Standard Chartered remains bullish on gold over the longer term. The bank continues to forecast an average gold price of $4,650 per ounce in the fourth quarter, rising to $4,850 in the first quarter of 2027. Cooper said investment allocations suggest the market may be approaching a potential bottom, and some short-covering activity indicates speculative investors may be starting to look for a price floor. Although Western investment demand has weakened, Standard Chartered expects physical demand from Asia to provide some support in the coming weeks. India's upcoming Diwali festival on November 8 could revive buying interest after a disappointing start to the seasonal gold market. India's gold imports fell 83% year-on-year in September to just 13.9 tonnes, the lowest monthly level since January 2023. Imports in the first nine months of the year were down 17% from the same period in 2025, putting the country on track for its weakest annual import volume since 2020.
Meanwhile, China's gold market continues to show resilience. Cooper said central banks and ETP investors have generally treated price corrections as buying opportunities for most of the year, helping to underpin the bank's constructive long-term outlook. She cautioned, however, that the coming weeks may remain volatile, especially if oil prices keep rising and inflation expectations stay elevated. Ibrahim argued that the sharp recent drop in gold prices should not be read as evidence of a fundamental deterioration in the investment outlook for precious metals. The sell-off does not mark a structural breakdown in gold's traditional relationship with financial markets, but rather reflects broader cross-asset liquidity stress. Setting aside the immediate weakness, long-term investment demand remains an important source of support for the metal. While central bank purchases are unlikely to accelerate significantly from extremely high levels, Ibrahim expects official-sector demand to remain a supportive factor. A more important catalyst may be private investment demand, particularly as concerns about U.S. fiscal sustainability intensify. On the other hand, growing unease over government debt and fiscal deficits in major global economies could prompt investors to increase demand for gold-backed exchange-traded funds and similar products.
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