Midterm elections and the nonfarm payrolls report could trigger major market swings. On Monday, international gold prices attempted to recover ground lost during last week's selloff. Diplomatic efforts between Iran and the United States to reopen the Strait of Hormuz pushed crude oil prices lower, easing some inflation concerns, as capital continued positioning ahead of this week's midterm elections and the key nonfarm payrolls report. The latest survey shows institutions beginning to waver, while retail investors remain aggressively bullish, with the $3,900–$4,000 range emerging as the new battleground between bulls and bears.
The Selloff Continues
Last week, gold prices fell sharply in late trading, with market positioning focused on further Federal Reserve policy tightening. Interest rate futures continued to show roughly a 75% probability of a year-end rate hike. Strong economic growth and persistent underlying inflation supported the case for further tightening. Meanwhile, the sharp decline in technology stocks may have triggered forced selling of safe-haven assets such as gold and margin calls, with spot gold touching $3,870.25 per ounce, its lowest level in more than a year. The weekly gold survey from Kitco, a precious metals retailer and market information service, showed that Wall Street gave up after gold fell below $3,900, with 63% of respondents bearish and only 6% bullish on this week's market, while among retail investors, the bullish proportion reached 53%, far exceeding the 30% bearish proportion.
"Gold's shine has dimmed," said Marc Chandler, Managing Director of Foreign Exchange at Bannockburn Global Forex. "Gold was priced near $4,700 at the end of August. However, there doesn't seem to be capitulation trading at the moment. Assuming prices will be pushed to new lows this year, I suspect gold prices could fall into the $3,750 to $3,850 range." Colin Cieszynski, Chief Market Strategist at SIA Wealth Management, said: "Technically, breaking below $4,000 is a significant breakthrough." Rich Checkan, President and Chief Operating Officer of Asset Strategies International, wrote: "I see competing influences emerging this week. The renewed strikes on oil tankers in the Strait of Hormuz could trigger retaliation shortly after the U.S. midterm elections. This would push oil prices higher and stoke inflation concerns, putting downward pressure on gold. But if Democrats make gains in the midterm elections, this could well prompt uneasy Republicans to turn to gold for safety and protection. I would treat every gold price decline as a buying opportunity." Daniel Pavilonis, Senior Commodities Broker at StoneX Group, believes that since gold and silver have broken through recent key support levels, precious metals may experience a longer and deeper correction, and gold needs some signs of looser monetary policy to resume its upward trajectory of the past few years. "Before sustained buying resumes, the metals could experience a deep pullback." Independent precious metals analyst and founder of the BubbleBubble report, Jesse Colombo, analyzed that gold and silver are testing key support zones, and if thoroughly broken, could lead to a significant decline in precious metals. "For example, for COMEX gold futures, $3,900 to $4,000 is the support zone I have been watching, which was formed in October and November a year ago. If the current support really fails, the next price level to watch is $3,500."
In contrast, the optimistic bullish sentiment among retail investors still holds the upper hand. Over the weekend, some investors began entering the market to buy the dip. According to reports, at Beijing Caibai, all small-weight investment gold bars under 30 grams sold out, and some people purchased 100-gram investment gold bars on the spot. The Shenzhen Shuibei market saw foot traffic surge to 60,000 visitors this weekend.
Is a Turning Point Approaching?
The Strait of Hormuz and the Iran-U.S. situation remain significant uncertainties for global markets, and a proposal to reopen it could provide a path to restoring normal oil tanker navigation. Currently, rising insurance premiums, shipping restrictions, and geopolitical risk premiums have become important components of asset pricing. New diplomatic progress has reduced immediate concerns about another major military escalation. On Monday, international crude oil prices fell more than 7%, easing concerns that rising energy costs would exacerbate inflation and force the Fed to tighten monetary policy further. Boosted by this, COMEX gold futures for November delivery on the New York Mercantile Exchange rose 1.83% to $3,956.90 per ounce. Since hitting a record high of $5,595 in January this year, gold has fallen 30% as the market bets that interest rates will remain elevated for an extended period. In its latest Monthly Gold Monitor, State Street Investment Management maintained its forecast for gold prices to trade between $4,750 and $5,500 per ounce by the end of the first quarter of 2027. However, the report lowered the probability of this scenario from 70% to 60%, as rising interest rates and a stronger dollar continue to weigh on these non-yielding precious metals. The gold team led by Aakash Doshi, Head of Gold Strategy at State Street, emphasized that although structural demand continues to support the broader gold market, uncertainty surrounding the Federal Reserve's monetary policy outlook is increasingly intensifying. The report shows that the market faces a more difficult monetary policy path. The firm currently assigns a 35% probability to its bearish scenario, which expects gold prices to remain in the $4,000 to $4,750 range over the next six to nine months. According to the FedWatch tool, the market expects a Fed rate hike probability of over 80% in December and believes there will be further rate hikes in the first quarter of 2027. The shift in market interest rate expectations and the resulting rise in Treasury yields pushed the dollar to a two-month high, increasing the opportunity cost of holding gold. Despite these headwinds, U.S.-listed gold exchange-traded funds attracted $11.7 billion in inflows during the third quarter, with September inflows reaching $3.7 billion. These inflows exceeded the $5.6 billion withdrawn in the second quarter. Analysts said: "In our view, this demonstrates investors' continued strategic allocation to gold as a currency hedge, alternative fiat asset, and portfolio diversification tool." The report also highlighted a concern that the Fed may once again make a policy mistake by overestimating the economic benefits of artificial intelligence. If these productivity gains fail to materialize quickly enough, higher borrowing costs could create significant problems for consumers, businesses, and the federal government. The Fed expects core inflation to return to its 2% target only by 2029, and if economic growth begins to deteriorate, this situation could lead to stagflation, with persistent inflation accompanied by weakening economic activity. This environment could ultimately further enhance gold's appeal as a store of value and a hedge against monetary policy uncertainty.
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