Gold is flashing warning signs after slipping below $4,000 an ounce last week, and Standard Chartered says the slide isn't over yet. Suki Cooper, the bank's Global Head of Commodities Research, warned that gold needs to hold near-term support or risk a much deeper correction. She pointed to $3,886 per ounce as the key level to watch. A sustained break below that price could open the door to a sharper decline. The metal has been in a downtrend for about two months and is edging closer to oversold territory, but Cooper says the downside risks remain real. Traders watching gold's momentum may also look to the MACD indicator for signs of a potential trend reversal.
Gold needs to hold near-term support or risk a much deeper correction, with $3,886 an ounce the key level to watch.
Several factors are keeping pressure on gold right now. Energy prices have climbed, adding to inflation worries and shaping how investors see U.S. monetary policy. Higher oil prices have kept rate-hike concerns alive, pushing investors to reassess their expectations. The U.S. dollar is also a headwind, with gold's three-month correlation to the greenback sitting at negative 47%. Even a drop in the 10-year Treasury yield, from 5.3% to about 4.97%, hasn't given gold much of a lift.
The selling isn't limited to gold. Tech-sector jitters and investors scrambling for cash have fueled selling across markets, with margin calls adding to the pressure. Gold-backed ETPs saw renewed outflows late in the week, ending a stretch of steady demand, though October flows remain slightly positive overall. Global ETP holdings fell 1.3 tonnes for the week.
Speculative investors have cut their gold exposure for eight straight weeks, pushing positioning to its lowest point since May. Cooper estimates at least 350 tonnes of ETP holdings are currently sitting at a loss, a situation that could trigger more selling if prices keep falling. Still, some short-covering suggests traders may be hunting for a bottom.
Markets see less than a 10% chance of a Fed rate hike this week, but an 86% probability of one in December, after the U.S. midterm elections. That outlook continues to weigh on gold. Standard Chartered still holds a constructive long-term view, and expects Asian demand, including India's Diwali buying season, to offer some support in the weeks ahead.
