TraderStef

Gold: Short-term selling pressure tests longer-term conviction Gold suffered a major setback on Friday, breaking below key support at USD 3,970 as the selloff across global technology and AI-related stocks intensified. Rising energy prices and concerns about renewed US strikes against Iran after the midterm elections added to inflation worries and weakened risk appetite. Gold closed below USD 3,900, a one-year low, completing its worst October since the global financial crisis with a 12.7% decline. Technical sellers remain in control, with deteriorating momentum triggering further long liquidation. Gold-backed ETFs recorded six tonnes of outflows last week, modest compared with the roughly 150 tonnes accumulated since July. However, with recent purchases now underwater, investors' willingness to maintain exposure will be an important test of their longer-term bullish conviction. Further liquidations could deepen and prolong the correction. Hedge funds have meanwhile been net sellers for nine consecutive COT reporting weeks, reducing their gold futures net long to 107,000 contracts ahead of the latest selloff, just 15,000 above this year's low. While speculative positioning has already been substantially reduced, the weakening technical outlook leaves gold vulnerable to further selling. The broader equity selloff adds another risk, particularly if investors are forced to raise cash by liquidating otherwise attractive holdings. Silver's continued underperformance has reinforced the negative sentiment, lifting the gold-to-silver ratio to an 11-month high near 79. The longer-term investment case for bullion remains intact. Rising government debt, fiscal sustainability concerns, geopolitical fragmentation and de-dollarisation continue to support gold's role as a portfolio diversifier. However, these structural drivers are currently insufficient to offset technical selling, reduced risk appetite and concerns that persistent energy-driven inflation could keep monetary policy restrictive. A deeper equity correction could eventually shift attention towards potential Federal Reserve support. Expectations for further rate hikes have already eased from three to two, with additional market stress potentially removing the remaining hikes. A weaker dollar and renewed concerns about fiscal and inflation credibility could eventually provide support for bullion. For now, the focus remains on global equities, Middle East developments, energy prices and US rate expectations. Technically, the close below USD 3,886, the October 2025 correction low, has further weakened the outlook. A recovery above USD 4,000 is needed to begin restoring a more neutral short-term picture. The structural reasons for holding gold have not disappeared, but stabilisation in market sentiment and positioning may be needed before they regain influence over prices.