Spot gold prices fell below $4,000 an ounce last Friday, with a downtrend of more than two months pushing prices into oversold territory and attracting some early attention. However, a market analyst at Standard Chartered Bank cautioned that gold must hold its current level or it could face significantly lower prices.

Gold prices fell below $4,000; Standard Chartered warns of key support level.

In her latest precious metals report, Standard Chartered's Global Head of Commodities Research, Suki Cooper, noted that global gold-backed exchange-traded products (ETPs) experienced another outflow of funds late last week, ending a period of relatively robust investment demand. Cooper stated, "It's worth noting that this sell-off wasn't limited to gold but spread across various assets, reflecting nervousness stemming from tech stocks and liquidity needs arising from investors meeting margin calls or raising cash." From a technical perspective, Cooper believes the market must hold the $3,886 per ounce support level. A sustained break below this level could expose the market to a much larger pullback. While precious metals are approaching oversold territory, Cooper cautioned that downside risks remain significant, namely that high energy prices continue to fuel inflationary pressures, forcing investors to reassess their expectations for US monetary policy. She added, "Crucially, gold needs to establish a bottom, as rising oil prices continue to weigh on inflation risks, and the prospect of further policy tightening is also weighing on gold."

Energy prices are driving up inflation, and the shadow of a Fed rate hike remains.

Despite short-term risks, Standard Chartered remains bullish on the long-term outlook for gold. The bank continues to forecast an average gold price of $4,650 per ounce in the fourth quarter, rising to $4,850 in the first quarter of 2027. This bullish assessment comes against a backdrop of persistently high market expectations for further tightening by the Federal Reserve. Standard Chartered notes that the market sees less than a 10% probability of a rate hike at Wednesday's monetary policy meeting (the decision will be announced early Thursday morning Beijing time), but following the US midterm elections, investors have already priced in an 86% probability of a rate hike in December. Cooper observes that the yield on the 10-year US Treasury note has fallen from 5.3% at the beginning of the month to around 4.97%, but this decline has provided little support for gold, as investors remain focused on persistent inflation and the possibility of further monetary tightening. Meanwhile, the US dollar remains a significant headwind for precious metals. Standard Chartered states that the three-month rolling correlation coefficient between gold and the US dollar remains at -47%, making the dollar one of the most stable drivers of gold price movements.

Speculative funds have been reducing their positions for several consecutive weeks, and institutional holdings have turned into losses.

Despite the still challenging macroeconomic environment, Cooper suggests that investment positions may indicate the market is approaching a potential bottom. The report shows that speculative investors have reduced their gold exposure for eight consecutive weeks, with profit-taking and long position liquidation pushing positions to their lowest level since May. Meanwhile, global gold-backed ETP holdings decreased by 1.3 tons last week, although October saw a slight net inflow overall. Cooper estimates that at current gold prices, at least 350 tons of ETP holdings are now in loss-making territory, suggesting the market may still be vulnerable to further liquidation. However, she also noted that some short-covering activity indicates speculative investors may be beginning to look for a price bottom.

Asian physical demand may become a new support.

Despite weakening investment demand from the West, Standard Chartered expects physical demand in Asia to provide some support in the coming weeks. Cooper specifically mentioned that India's Diwali festival on November 8th could reignite buying interest after a disappointing start to the seasonal gold market. India's gold imports in September fell 83% year-on-year to only 13.9 tons, the weakest monthly level since January 2023; imports in the first nine months of this year are down 17% compared to the same period in 2025, putting India's full-year imports on track for their weakest performance since at least 2020. However, Cooper noted that a weaker-than-expected monsoon and high gold prices delayed seasonal purchases, and demand is expected to rebound in the next two weeks as retailers stock up for the festival. Meanwhile, the gold market in major Asian countries continues to show resilience: September imports surged 34% year-on-year to 144.9 tons, a three-month high; year-to-date imports reached 1286 tons, a 67% increase compared to the same period last year.

The central bank and ETFs have a strong willingness to buy on dips, and short-term volatility is unlikely to subside.

Cooper stated that for most of this year, central banks and ETP investors have generally viewed price pullbacks as buying opportunities, which has supported Standard Chartered's constructive long-term outlook. However, she cautioned that the market could remain highly volatile in the coming weeks, especially if oil prices continue to rise and inflation expectations remain high. She concluded, "Our long-term view on gold remains unchanged, but if oil prices continue to rise and inflation expectations remain high, gold prices may continue to test lower levels in the coming weeks."

Conclusion

On one hand, there's the pressure of liquidation from speculative funds and losing positions; on the other hand, there's support from Asian physical demand and central bank bargain hunting. Gold prices are currently hovering around the "lifeline" of $3,886. Standard Chartered's long-term bullish outlook remains unchanged, but each dip in the short term is testing the market's patience. Spot gold daily chart source: FX678. At 13:39 Beijing time on October 28, spot gold was trading at $4034.57 per ounce.