Gold: Short-term selling pressure tests longer-term conviction

Key Points:

• Gold breaks key support: A selloff across technology stocks, rising energy prices and renewed geopolitical concerns pushed gold below USD 3,900, completing its worst October since the global financial crisis. 
• Positioning remains a near-term risk: Nine consecutive weeks of hedge fund selling and emerging ETF outflows highlight weakening sentiment, with recent ETF buyers' conviction facing an important test. 
• Silver and platinum underperform: Both metals fell around 8% last week, compared with gold's 2.6% decline, as economic growth concerns and deteriorating technical conditions added to selling pressure. 
• Structural support persists: Fiscal concerns, de-dollarisation and geopolitical risks continue to underpin the longer-term case for bullion, but stabilisation in risk appetite and monetary policy expectations is needed to counter near-term selling pressure.

Gold suffered a major setback on Friday, breaking below key support around 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 following the midterm elections added to inflation worries and weakened broader risk appetite. Gold closed below USD 3,900, a one-year low, completing its worst October since the global financial crisis with a 6.8% decline.

Technical sellers remain in control, with deteriorating price 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 much of this recent buying now underwater, investors' willingness to maintain their exposure will be an important test of their longer-term bullish conviction. Should that conviction weaken, further liquidations could deepen and prolong the correction.

Hedge funds have meanwhile been net sellers of gold futures for nine consecutive COT reporting weeks, reducing their net long position to 107,000 contracts ahead of the latest selloff, just 15,000 above this year's low. While a substantial amount of speculative length has already been removed, the deteriorating technical outlook leaves gold vulnerable to further selling, particularly if broader equity market weakness triggers additional deleveraging.

Selling pressure has been even more pronounced in silver and platinum, both of which fell around 8% last week, compared with gold's 2.6% decline. Concerns about the economic outlook and weakening technical conditions weighed on both metals, particularly silver, which has struggled to regain its footing following the sharp rally and subsequent correction between December and February. Last week's break above key resistance in the gold-to-silver ratio reinforced silver's relative weakness, although today's stronger rebound in the white metal has helped ease some of those concerns.