Gold has fallen below $4,000 an ounce after two months of losses, leaving the market close to oversold territory. But Suki Cooper, global head of commodities research at Standard Chartered, says prices still need to establish a floor near current levels. A sustained break below $3,886 an ounce could open the door to a deeper correction.
$3,886 is the key near-term level
In its latest precious metals report, Cooper said global gold-backed exchange-traded products (ETPs) saw renewed outflows late last week, ending a comparatively resilient stretch of investor demand. Selling also spread beyond gold, reflecting unease over volatility in technology stocks and investors cutting positions to meet margin calls or raise cash.
Gold may be approaching oversold levels, but that does not remove the risk of further declines, Cooper said. Elevated energy prices are adding to inflation pressure and prompting investors to reassess the US monetary policy outlook. If oil continues to rise and inflation risks remain in focus, expectations of further rate increases could weigh on gold.
Rates and the dollar remain headwinds
Standard Chartered expects gold to average $4,650 an ounce in the fourth quarter, rising to $4,850 in the first quarter of 2027. That longer-term constructive view comes as markets contend with concerns that the Federal Reserve could tighten policy further.
Markets put the probability of a rate increase at Wednesday's Fed meeting below 10%. Investors, however, see an 86% chance of a hike at the December meeting, after the US midterm elections. The 10-year Treasury yield has fallen to about 4.97% from 5.3% earlier this month, but the retreat has yet to provide a clear boost to gold. Investors remain focused on persistent inflation and the possibility of further tightening.
The dollar is another significant headwind. Standard Chartered said gold's three-month rolling correlation with the dollar stands at minus 47%, underscoring the currency's continued influence on prices.
Speculative positions at their lowest since May
Positioning suggests the market may be nearing a potential floor. Speculative investors have reduced their gold exposure for eight consecutive weeks, with profit-taking and long-position closures taking holdings to their lowest level since May. Global gold-backed ETP holdings fell by 1.3 tonnes last week, although flows have remained slightly positive since October.
Cooper estimates that at least 350 tonnes of ETP holdings are underwater at current prices, leaving the market vulnerable to further position closures. Some signs of short-covering, however, suggest that speculative investors may be starting to look for a price floor. Standard Chartered said central banks and ETP investors had generally treated gold pullbacks as buying opportunities for much of this year, supporting its longer-term constructive stance.
Indian festival demand may recover; China imports rise
Standard Chartered expects physical demand in Asia to offer some support over the coming weeks. India's Diwali festival falls on November 8, and Cooper said retailer restocking ahead of the celebrations could revive buying, after a weak start to the seasonal demand period.
India's gold imports fell 83% year on year to 13.9 tonnes in September, their lowest monthly level since January 2023. Imports were down 17% over the first nine months of the year, putting the annual total on track to be the lowest since at least 2020. Cooper said weaker-than-expected monsoon conditions and high gold prices had delayed seasonal purchases. Demand could improve over the next two weeks as retailers prepare for the festival.
China's market has been firmer. Gold imports rose 34% year on year to 144.9 tonnes in September, a three-month high. Imports reached 1,286 tonnes in the year to date, up 67% from the same period last year. Cooper cautioned that if rising oil prices push inflation expectations higher, gold could continue to test support over the coming weeks.