Warning of a sharp drop in gold prices: Good news is exhausted + the risk of a double top is increasing, and gold prices may start to fall back
2025-10-21 16:24:03
Spot gold prices retreated during the Asian and European trading sessions on Tuesday (October 21st). The previous trading day, gold prices had surged by approximately 3% during the European and American sessions. This rapid rise in gold prices prompted profit-taking. While a pullback after a rapid rise is considered normal, the market is awaiting new stimulus after the positive news has been fully digested. Without further stimulus, gold prices could experience a significant correction.
This article updates the main factors affecting the development of gold prices in the recent period
In the Asian session on Tuesday, the US dollar rebounded for the third consecutive day, putting pressure on gold prices; in addition, the signal of marginal easing in the Sino-US trade situation supported the temporary decline of global risk aversion, further weakening the allocation attractiveness of this safe-haven precious metal.
US President Trump stated last Friday that comprehensive tariffs on China were unsustainable. He further added on Sunday that China and the US are expected to reach a high-quality agreement, but warned that if the talks fail, they could face potential tariffs of 155%. This makes the US-China trade negotiations next week a key market focus.
At the same time, gold is still in the overbought range on the daily chart, which has become the core driving force triggering some profit-taking.
According to CME Group's FedWatch tool, interest rate futures show that the probability of a 25BP rate cut in October and another 25BP rate cut at the end of December has remained stable at more than 90% for more than a week.
This means that traders have almost fully priced in the Fed's expectation of a 25 basis point rate cut at both its October and December policy meetings. Against the backdrop of lingering economic risks, this expectation can limit the appreciation of the US dollar and provide upward support for interest-free gold, but the support effect is already fading as the market fully bets on it.
Market concerns are growing that the prolonged US government shutdown will drag down economic performance. On Monday, the US Senate rejected a proposal to reopen the government for the 11th time, extending the shutdown into its third week and maintaining a bipartisan deadlock. Trump accused the opposition of obstructing measures to control illegal immigration.
According to CNBC on Monday, Hassett, director of the White House National Economic Council, said there is a possibility of making progress on the government shutdown this week. I think the government shutdown may end sometime this week. If the shutdown does not end, the White House will consider taking tougher measures.
Combined with the delayed release of US CPI data on Friday, the US government shutdown is expected to come to an end.
The Israeli-Palestinian issue over Gaza and the Russia-Ukraine conflict certainly show no signs of ending, but neither do they show any signs of worsening.
It is reported that Russian President Putin reiterated that Ukraine must completely abandon Donetsk Oblast, which is a prerequisite for ending the war. He also hinted that Russia may be willing to return some of the occupied southern Ukrainian territories. In addition, Trump proposed on Sunday that the current front line should maintain the status quo.
However, Ukrainian President Zelensky has repeatedly and explicitly rejected the proposal to hand over Donbas and any other occupied territories to Russia. Geopolitical risks continue to ferment, which will further provide support for the safe-haven precious metal and limit its room for correction.
Qatar's King Emir condemned Israel's aggression and practices in Palestine and its continued violations of the Gaza ceasefire agreement, which came after the Israeli-Palestinian ceasefire agreement.
Sagar Khandwal, a strategist at UBS Global Wealth Management, said that the recent trend of gold is driven by the increasing political and trade uncertainty. Coupled with the decline in real interest rates, the weakening US dollar, the rising government debt and geopolitical turmoil, the price of gold may rise to $4,700 per ounce, and gold mining stocks will perform better.
In his report, he noted that gold has risen by over 60% this year, outperforming all major assets, with the US government shutdown and renewed trade tensions injecting momentum into trading. While the gold rally may increase subsequent volatility, UBS still believes that gold is a core component of risk-averse investment strategies.
Khandewal warned that inflation remains sticky, and if the Federal Reserve cuts interest rates, US real interest rates are likely to fall into negative territory. This will weaken the dollar's appeal and drive capital flows into gold. According to data from the World Gold Council, global gold ETFs saw their largest monthly net inflow ever in September (US$17 billion), bringing net inflows to US$26 billion in the three months ending in September, the strongest quarter on record.
UBS predicts that gold investment demand will further strengthen, coupled with high central bank gold purchases, and estimates that global gold demand this year will be approximately 4,850 tons, the highest since 2011. If private investors follow the central bank's example and diversify their US Treasury holdings into gold, spot gold prices may receive additional upward momentum.
Khandewal emphasized that continued economic, geopolitical, and policy uncertainty will support continued inflows into gold, pushing prices closer to the target of $4,700 per ounce. Given gold's low correlation with stocks and bonds (especially during periods of market stress), he recommends a mid-single-digit allocation to gold within a diversified portfolio. He also recommends focusing on select gold mining stocks, as their cash flow growth is expected to outpace gold price gains over the next six months.
Concerns about the potential economic drag from the US government shutdown, coupled with market expectations for a dovish Federal Reserve, may limit further appreciation of the US dollar and provide support for non-interest-bearing gold. Meanwhile, ongoing trade uncertainty and geopolitical tensions are also supporting gold's decline. However, until these events develop in more unexpected directions, their impact on gold is gradually waning.
Traders may tend to wait for the US consumer inflation data to be released on Friday, which is expected to provide key clues to the Fed's interest rate cut path; and then become the core variable affecting the US dollar trend and guiding the direction of spot gold against the US dollar before the two-day key policy meeting of the Federal Open Market Committee (FOMC) of the Federal Reserve starting on Tuesday next week. As the views of the previous article are, before these key time nodes, every rise in gold may attract profit-taking orders, because these are very cost-effective points for bulls to take profits.
But institutions are still bullish on gold, and the fundamentals make it easy for gold to gain support at key points.
The spot gold intraday chart shows that 4319 is the watershed between strength and weakness, and the current spot gold trend is weakening. 4270 is near the 5-day moving average of the spot gold daily chart and a key line of defense for bulls. If 4270 fails to hold, spot gold may fall below 4235, leading to the possibility of a double top. Currently, 4319 is the first resistance level. If it rises above this level, the double top pressure can be temporarily resolved.
(Spot gold time-sharing chart, note this was taken when the article was written, and the current gold price has fallen rapidly)
The daily chart of spot gold shows that the gold price rebounded to the upper track and then returned to the middle track and the 5-day line. Since the 5-day line has been tested twice in a row and rebounded, there may be a risk of falling below the 5-day line this time. At the same time, if the gold price closes below the 5-day line, it may face a larger level of correction, which may be in time or space.
(Spot gold daily chart, source: Yihuitong)
At 16:17 Beijing time, spot gold was trading at $4,253 per ounce.
This article updates the main factors affecting the development of gold prices in the recent period
The easing of trade tensions and the continued rebound of the US dollar suppressed gold prices
In the Asian session on Tuesday, the US dollar rebounded for the third consecutive day, putting pressure on gold prices; in addition, the signal of marginal easing in the Sino-US trade situation supported the temporary decline of global risk aversion, further weakening the allocation attractiveness of this safe-haven precious metal.
US President Trump stated last Friday that comprehensive tariffs on China were unsustainable. He further added on Sunday that China and the US are expected to reach a high-quality agreement, but warned that if the talks fail, they could face potential tariffs of 155%. This makes the US-China trade negotiations next week a key market focus.
At the same time, gold is still in the overbought range on the daily chart, which has become the core driving force triggering some profit-taking.
The momentum for gold's rise, brought on by the near certainty of a rate cut, is fading
According to CME Group's FedWatch tool, interest rate futures show that the probability of a 25BP rate cut in October and another 25BP rate cut at the end of December has remained stable at more than 90% for more than a week.
This means that traders have almost fully priced in the Fed's expectation of a 25 basis point rate cut at both its October and December policy meetings. Against the backdrop of lingering economic risks, this expectation can limit the appreciation of the US dollar and provide upward support for interest-free gold, but the support effect is already fading as the market fully bets on it.
US shutdown may be coming to an end
Market concerns are growing that the prolonged US government shutdown will drag down economic performance. On Monday, the US Senate rejected a proposal to reopen the government for the 11th time, extending the shutdown into its third week and maintaining a bipartisan deadlock. Trump accused the opposition of obstructing measures to control illegal immigration.
According to CNBC on Monday, Hassett, director of the White House National Economic Council, said there is a possibility of making progress on the government shutdown this week. I think the government shutdown may end sometime this week. If the shutdown does not end, the White House will consider taking tougher measures.
Combined with the delayed release of US CPI data on Friday, the US government shutdown is expected to come to an end.
Geopolitical tensions continue to support gold
The Israeli-Palestinian issue over Gaza and the Russia-Ukraine conflict certainly show no signs of ending, but neither do they show any signs of worsening.
It is reported that Russian President Putin reiterated that Ukraine must completely abandon Donetsk Oblast, which is a prerequisite for ending the war. He also hinted that Russia may be willing to return some of the occupied southern Ukrainian territories. In addition, Trump proposed on Sunday that the current front line should maintain the status quo.
However, Ukrainian President Zelensky has repeatedly and explicitly rejected the proposal to hand over Donbas and any other occupied territories to Russia. Geopolitical risks continue to ferment, which will further provide support for the safe-haven precious metal and limit its room for correction.
Qatar's King Emir condemned Israel's aggression and practices in Palestine and its continued violations of the Gaza ceasefire agreement, which came after the Israeli-Palestinian ceasefire agreement.
Institutional Views:
Sagar Khandwal, a strategist at UBS Global Wealth Management, said that the recent trend of gold is driven by the increasing political and trade uncertainty. Coupled with the decline in real interest rates, the weakening US dollar, the rising government debt and geopolitical turmoil, the price of gold may rise to $4,700 per ounce, and gold mining stocks will perform better.
In his report, he noted that gold has risen by over 60% this year, outperforming all major assets, with the US government shutdown and renewed trade tensions injecting momentum into trading. While the gold rally may increase subsequent volatility, UBS still believes that gold is a core component of risk-averse investment strategies.
Khandewal warned that inflation remains sticky, and if the Federal Reserve cuts interest rates, US real interest rates are likely to fall into negative territory. This will weaken the dollar's appeal and drive capital flows into gold. According to data from the World Gold Council, global gold ETFs saw their largest monthly net inflow ever in September (US$17 billion), bringing net inflows to US$26 billion in the three months ending in September, the strongest quarter on record.
UBS predicts that gold investment demand will further strengthen, coupled with high central bank gold purchases, and estimates that global gold demand this year will be approximately 4,850 tons, the highest since 2011. If private investors follow the central bank's example and diversify their US Treasury holdings into gold, spot gold prices may receive additional upward momentum.
Khandewal emphasized that continued economic, geopolitical, and policy uncertainty will support continued inflows into gold, pushing prices closer to the target of $4,700 per ounce. Given gold's low correlation with stocks and bonds (especially during periods of market stress), he recommends a mid-single-digit allocation to gold within a diversified portfolio. He also recommends focusing on select gold mining stocks, as their cash flow growth is expected to outpace gold price gains over the next six months.
In summary
Concerns about the potential economic drag from the US government shutdown, coupled with market expectations for a dovish Federal Reserve, may limit further appreciation of the US dollar and provide support for non-interest-bearing gold. Meanwhile, ongoing trade uncertainty and geopolitical tensions are also supporting gold's decline. However, until these events develop in more unexpected directions, their impact on gold is gradually waning.
Traders may tend to wait for the US consumer inflation data to be released on Friday, which is expected to provide key clues to the Fed's interest rate cut path; and then become the core variable affecting the US dollar trend and guiding the direction of spot gold against the US dollar before the two-day key policy meeting of the Federal Open Market Committee (FOMC) of the Federal Reserve starting on Tuesday next week. As the views of the previous article are, before these key time nodes, every rise in gold may attract profit-taking orders, because these are very cost-effective points for bulls to take profits.
But institutions are still bullish on gold, and the fundamentals make it easy for gold to gain support at key points.
Technical Analysis:
The spot gold intraday chart shows that 4319 is the watershed between strength and weakness, and the current spot gold trend is weakening. 4270 is near the 5-day moving average of the spot gold daily chart and a key line of defense for bulls. If 4270 fails to hold, spot gold may fall below 4235, leading to the possibility of a double top. Currently, 4319 is the first resistance level. If it rises above this level, the double top pressure can be temporarily resolved.
(Spot gold time-sharing chart, note this was taken when the article was written, and the current gold price has fallen rapidly)
The daily chart of spot gold shows that the gold price rebounded to the upper track and then returned to the middle track and the 5-day line. Since the 5-day line has been tested twice in a row and rebounded, there may be a risk of falling below the 5-day line this time. At the same time, if the gold price closes below the 5-day line, it may face a larger level of correction, which may be in time or space.
(Spot gold daily chart, source: Yihuitong)
At 16:17 Beijing time, spot gold was trading at $4,253 per ounce.
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- The market involves risk, and trading may not be suitable for all investors. This article is for reference only and does not constitute personal investment advice, nor does it take into account certain users’ specific investment objectives, financial situation, or other needs. Any investment decisions made based on this information are at your own risk.
