Recently, international precious metal prices have tumbled significantly. Following last week's decline where London gold prices fell below $4,000 for the first time in three months, on Monday (October 26th), they dropped again before rebounding, reaching a low of $3,978 per ounce during the session, still remaining at a level seen in the past three months.
In the A-share market, precious metals concept stocks experienced volatile declines, with the leading stock Chifeng Gold once hitting the daily limit down, ultimately closing down 8.9%. Gold ETF stocks generally saw significant drops. As of the close, gold ETF funds linked to gold SSH stocks all fell by more than 3%, with most stocks falling over 5% during the session. According to Wind data, since last Friday, there has been a net outflow of over 1.4 billion yuan in gold ETF funds.
Currently, the 20 existing gold ETF funds still mainly consist of physical gold ETF (commodity type), with a total scale of approximately 289.9 billion yuan, which is about 29.4 billion yuan less than two months ago. Among them, the leading fund, Huaan Gold ETF (518880. SH), has seen its scale shrink by nearly 11.6 billion yuan, with the latest scale at around 99.8 billion yuan; Boshi Gold ETF (159937. SZ) and E Fund Gold ETF (159934. SZ) have also seen their scales shrink by about 5 billion yuan and 3.5 billion yuan respectively, with scales of around 40.6 billion yuan and 35.4 billion yuan.
On the surface, spot gold continued its downward trend since late August and on October 23rd, it fell below $3,980 per ounce, with a decline of nearly 14%. Looking back over the past two months, as the precious metals sector corrected, gold stocks ETF generally fell by more than 25%, and those linked to the SGE gold 9999 and Shanghai gold spot prices, such as ETF, also saw declines of over 12%.
How to view this round of gold price correction? A report by Nanhua Futures analyzes that last week, the decline in both gold and silver prices was concentrated in the second half of the week. The core drivers were the sharp drop in tech stocks on Thursday, which triggered a liquidity squeeze and led to selling pressure on gold and silver, as well as a shift in funds towards U.S. Treasury bonds as risk appetite decreased, casting doubt on gold's role as a safe-haven asset. Additionally, after gold and silver broke below their previous lows on Thursday, leveraged long positions triggered stop-losses, exacerbating the downward pressure on prices. At the same time, the redemption of certain types of ETF positions further contributed to the decline in gold prices on that day. Although tech stocks stopped falling on Friday, rising oil prices due to uncertainties in the Middle East and concerns about inflation put additional pressure on gold and silver.
Nanhua Futures stated: 'Since the decline in gold and silver prices at the end of August, the ETF funds have remained generally stable. However, this week's sharp drop has led to a significant ETF redemption. It is recommended to pay attention to the risk of investors with such positions exiting the market and be vigilant against the potential formation of a self-reinforcing selling cycle in the future.'
Oil price volatility, midterm election uncertainties, supply and demand of U.S. Treasury bonds, and the Federal Reserve's monetary policy are all seen as significant tests for gold prices in the fourth quarter. With the key $4,000 level being broken below, market sentiment tends to be pessimistic in the medium to short term.
The macro team at Guolian Minsheng Securities believes that the short-term correction in gold has entered a 'deep water zone', and the market may be waiting for the tail risks to clear up; however, in the medium to long term, the foundation for gold to return to an upward trend after a short-term rebound may not be solid. The upper limit for the current London gold rebound from its oversold position is around $4,300 to $4,500.
The team stated, "If a fat-tail event of rising crude oil prices occurs, gold could see a concentrated sell-off due to liquidity constraints. Meanwhile, the 3-month gold at-the-money option IV maintaining a range of 20% to 30% corresponds precisely to a maximum drawdown of 9% to 15%. If the London gold price falls below $4,000 per ounce, it would mean that since August 25, 2026, the maximum drawdown in gold prices has exceeded 15%. The short-term market may be awaiting the clearing of these tail risks."
The aforementioned report suggests that as gold gradually enters the 'second half' of a bear market, it is necessary to pay attention to potential factors that could trigger a rebound from its excessive decline in the short term. These include the market's correction of expectations regarding 'gold prices leading ahead of future continuous interest rate hikes', as well as the uncertainties surrounding the mid-term elections in the United States.
Regarding the limited room for rebound, the macro team at Guolian Minsheng Securities mentioned several considerations: Firstly, this year's high base may lead to a "downshift" in year-on-year inflation in the United States in 2027, but this does not mean that the Federal Reserve's interest rate hike pace will "immediately slow down." Secondly, if the U.S. government becomes a "lame-legged government," the slowdown in fiscal expenditure growth could result in a slower deterioration of the dollar's credibility. Lastly, based on historical analysis, the confirmation of an upward turning point in gold prices generally occurs in the second half of the Federal Reserve's interest rate hike cycle, so it is still too early to confirm an upward trend at present.
Nanhua Futures report suggests that after the current London gold price fell below the 4,000 mark and London silver price fell below 55, it is necessary to be wary of whether ETF will trigger new selling pressure. Within the week, SPDR gold has already shown signs of selling pressure. At the same time, there is insufficient upward momentum for gold prices, as gold and silver typically lack buying support in the early stages of an interest rate hike cycle.
Nanhua Futures stated: 'Based on the current market pricing for nearly three interest rate hikes by the Federal Reserve, if there is negative feedback in the stock, bond, and foreign exchange markets, gold and silver may experience some rebound momentum. However, if the decline is significant enough to further trigger liquidity pressures, then gold and silver could still face concurrent pressure.' The report predicts a high probability of a Fed interest rate hike in December, with the core resistance level for gold seen at $4,700, with particular attention to the $4,400 resistance level first.
Caida Futures report also pointed out: 'From a technical analysis perspective, the medium-term trend for gold and silver prices has turned pessimistic. By last Friday, international gold prices not only fell below the $4,000 mark during trading, but more importantly, they broke below the 20-month moving average, which has not occurred since the bull market began. If the 20-month moving average cannot be quickly regained, it will become a resistance level, and the outlook for gold and silver prices in the future remains concerning.'
Recently, increased volatility in U.S. Treasury yields has drawn significant attention from the market. A report by Huaxi Securities indicates that the main factor behind the decline in precious metals last week was not a one-way rise in interest rates, but rather a simultaneous occurrence of falling interest rates and reduced positions by investment funds.
Huaxi Securities stated: "After the capital expenditure and financing risks of technology companies came under attention, funds were preferentially allocated to more liquid U.S. Treasury bonds, and some risky positions were reduced; although gold has hedging properties, it may also become an object for liquidation during the process of portfolio deleveraging. The decline in holdings of SPDR coincides with the weakening of gold prices, explaining the divergence where bonds rose while gold did not see a corresponding boost. On the other hand, residential construction starts and builders' confidence are weak, but the number of initial job applications remains low, and consumer inflation expectations remain high. Macroeconomic data is not sufficient to support a rapid shift to loose policies. Energy supply risks further enhance inflation stickiness, and the improvement in real holding costs due to declining nominal yields still needs to be observed."
In the medium to long term, the core of this round of gold bull market is not merely a series of interest rate cuts, but rather a resonance between the re-evaluation of US dollar credit, fiscal constraints in the United States, diversification of central bank reserves, and geopolitical risks. According to the aforementioned report, from a long-term perspective, the factors that provide support for gold, such as the weakening of US dollar credit, debt expansion, central bank gold purchases, and geopolitical risks, have not changed.
