The primary driver behind this selloff is a resurgence in hawkish expectations regarding US monetary policy. Despite the Federal Reserve holding its benchmark interest rates steady at 3.75% to 4.00% earlier this week, market participants remain convinced that a rate hike is likely in December. This persistent view is anchored by strong recent US economic data. Third-quarter Gross Domestic Product (GDP) growth exceeded expectations, indicating that the economy remains resilient. Furthermore, September Personal Consumption Expenditures (PCE) inflation, the Federal Reserve’s preferred gauge of price stability, rose by 0.5% on a monthly basis and 3.6% year-on-year. These figures suggest that inflationary pressures are not yet fully subdued, complicating the Fed’s path toward easing.
Higher interest rates directly impact gold through the mechanism of real yields. As yields on US Treasuries rise, the opportunity cost of holding gold—which pays no interest or dividends—increases. This dynamic is further exacerbated by elevated oil prices, driven by supply concerns in the Middle East. Higher energy costs contribute to sticky inflation, reinforcing the argument for tighter monetary policy. Consequently, the 10-year US Treasury yield has come under upward pressure, with some analysts projecting it could peak between 5.25% and 5.50% if the Fed proceeds with hikes in December and again in early 2027.
Technical factors and market flows have amplified the decline. Speculative selling and net outflows from Exchange-Traded Funds (ETFs) have added to the downward momentum. The $4,000 level, which acted as a key resistance point, has now reversed to become fragile support after being tested repeatedly in recent sessions. Conversely, the $3,886 level is currently viewed as critical downside support. Standard Chartered’s Suki Cooper warned that if this support level fails, it could trigger a deeper correction in the price of gold.
Analyst opinions remain divided on the trajectory of the metal in the coming months. In the short term, caution prevails. Yuxuan Tang of JPMorgan Private Bank highlighted thin liquidity in the market, noting that “Gold will find a solid bottom when rates peak.” Tang’s outlook suggests that until the Federal Reserve signals a pause or reversal in its tightening cycle, downward pressure on gold prices will persist. This view aligns with the current market pricing, which still anticipates further hikes, implying that the current low may not be the absolute bottom of the correction cycle.
However, longer-term forecasts remain more optimistic. A Reuters poll of 30 analysts indicates a median forecast for gold prices of $4,495 for 2026 and $4,650 for 2027. These projections suggest that the current decline is viewed by many as a temporary correction rather than a structural break. Cooper, for instance, expects prices to recover once market focus shifts back to structural trends such as de-dollarization and currency debasement. These macro-themes, while not immediately impactful, provide a floor for long-term demand for the metal as a store of value.
The broader precious metals complex is also under pressure. White metals, including silver, have sunk deep into oversold zones, with reports indicating that silver may fall further against gold as the physical market weakens. This divergence suggests that industrial demand for silver is struggling to offset the speculative selling seen in gold. The weakening of the physical market for these metals further underscores the dominant influence of financial factors, such as interest rates and liquidity, over physical demand in the current environment.
Investors are now closely watching the upcoming US midterm elections and the December Federal Reserve decision as the next potential catalysts for the market. A dovish surprise from the Fed or a shift in political sentiment that reduces inflationary pressure could provide the relief needed to stabilize the $3,886 support level. Until then, the interplay between strong US growth data and the Fed’s hawkish stance continues to weigh on gold, keeping the precious metal in a precarious position near its yearly lows.
