After a powerful year-to-date advance, gold has retraced for a second consecutive week, before stabilizing modestly at the start of the new week. The drawdown is occurring against a complex cross-asset backdrop: trend followers are extended across global equities; U.S. rates remain sensitive to shifting growth and inflation narratives; and the dollar has rebounded as investors scale back expectations for additional near-term Fed easing. At the same time, China’s microstructure for physical demand is evolving, as policy changes lift consumer costs and import flows moderate. This article synthesizes recent bank research, price action, and positioning commentary to frame the drivers of the move and the conditions that could shape the path ahead.
Gold edged higher on Monday, with spot prices around $4,014 an ounce and U.S. futures near $4,025, clawing back a fraction of last week’s more-than-2% decline. Even so, October still delivered roughly 4% monthly gains, underscoring how fast the prior rally had carried the metal into overbought territory. The move lower has coincided with the U.S. Dollar Index hovering near three-month highs, which raises the foreign-currency cost of gold and dampens overseas demand, and with global equity indices setting fresh all-time highs, which typically reduce safe-haven flows. In parallel, other precious metals, firm silver and platinum, both advanced, while industrial metals traded more mixed amid softer Chinese manufacturing readings.
Bank of America highlights that CTAs continued to unwind gold length as prices fell for a second week, with the bank’s more risk-averse models having already stopped out. Higher risk-tolerance programs may still be long, given that trend signals remained bullish into late October. Indeed, BofA’s CTA model showed gold “fully long” across short-, medium-, and long-term horizons at month-end, with trend strength readings at 100%. The catch is that several CTA strategies had already crossed stop-out thresholds, a juncture historically associated with elevated volatility as systematic supply hits the tape. There has also been notable rotation across the commodity complex: trend followers reportedly added to aluminum longs after five consecutive weekly gains, leaving that position among the most stretched in the space, and model signals point to potential near-term buying in soybeans and soybean meal.
Beyond commodities, CTAs remain heavily long equities across the U.S., Europe, and Japan. While stop-loss levels are not immediately at risk, Bank of America’s scenario analysis suggests a sharp pullback could force significant de-risking, with up to $148 billion of programmatic equity selling possible over a down week. In rates and foreign exchange, “stretched U.S. Treasury longs” flirted with sell triggers after the Fed meeting as yields rose and the dollar firmed; a subsequent dip in 10-year yields kept those longs intact for now. The models project continued CTA buying of the dollar against major peers, a headwind for dollar-denominated gold.
The Federal Reserve cut its policy rate by 25 basis points, a move that would typically support a non-yielding asset like gold. Yet Chair Jerome Powell’s message that further cuts are “not a foregone conclusion” cooled expectations for a follow-up reduction in December. That recalibration has buoyed the dollar and, intermittently, real and nominal yields, raising the opportunity cost of holding bullion. In practice, gold’s sensitivity to real yields remains a central channel: persistent firmness in the dollar and any renewed rise in real rates would likely cap rallies, whereas softer data and a drift lower in yields would quickly restore support.
Safe-haven premia have also eased marginally. A closely watched meeting in Busan between President Trump and President Xi concluded with pledges to reduce trade barriers and outline tariff relief alongside increased Chinese purchases of U.S. goods. Although the outcome stopped short of a comprehensive deal, it reduced immediate tail risks and helped calm market nerves, dulling one of the catalysts that had supported gold earlier in the year. While geopolitical risk can re-emerge abruptly, the market is presently pricing a lower stress premium than it was during prior flare-ups.
China-specific factors have come to the fore. Authorities are ending a tax rebate for some retailers that had effectively offset VAT on gold resold after purchase from the Shanghai Gold Exchange. By removing that offset, the policy makes gold more expensive for Chinese consumers at the margin, potentially softening retail demand. Import flows have also moderated: Hong Kong data show that net gold exports to China fell 17.6% month-on-month in September to just over 22 tonnes. One month does not make a trend, and the People’s Bank of China’s longer-run diversification away from U.S. debt remains a structural theme, but the data hint that elevated prices may be tempering the pace of official and private buying in the near term. Notably, recent outflows from Chinese gold ETFs, the largest since May, have now subsided, removing a transient source of pressure.
Developments in China’s industrial metals policy add another layer. The China Nonferrous Metals Industry Association has urged limits on new copper, zinc, and lead smelting capacity amid intensifying domestic competition and record-low treatment and refining charges. If implemented, this would be the most significant intervention in base metals since the 2017 cap on aluminum output. Such shifts can influence cross-commodity allocation by systematic funds and relative-value trades, thereby indirectly affecting gold’s flow-of-funds backdrop.
There are growing signs that selling fatigue is emerging. TD Securities argues that the bulk of CTA selling is already behind the market and that a fresh wave of programmatic liquidation would likely require a break below roughly $3,040 per ounce, far beneath current prices, implying a substantial buffer against additional systematic supply. On the discretionary side, traders on Comex have covered a notable portion of shorts but remain net short, likely reflecting a tactical long-dollar stance. If the dollar rally stalls or if key technical levels in gold hold, this cohort could become marginal buyers, aiding stabilization.
Gold’s recent setback is less the story of a single catalyst than of multiple forces aligning: systematic supply from CTA stop-outs, a firmer dollar and repriced Fed path, the easing of a geopolitical risk premium, and nuanced changes in China’s physical and official demand, with evidence that the heaviest CTA selling has already occurred and thresholds for fresh liquidation sitting far below current prices, flow headwinds are receding. That shifts the center of gravity back to fundamentals, real yields, the dollar, and the durability of global risk appetite,e as well as to China’s evolving microstructure. The technical fulcrum sits at $4,000: hold it, and the long-term bullish structure remains intact with scope to rebuild momentum; lose $3,970, and a deeper corrective phase toward last week’s lows becomes the base case. In a market still defined by cross-asset extremes and policy sensitivity, traders should expect choppy, catalyst-driven conditions clustered around the $3,970–$4,100 corridor.