Gold's sharp correction over the past few weeks has raised questions about whether the metal's record-breaking rally has run out of steam. However, despite the recent sell-off, analysts believe the longer-term investment case for gold remains intact, even as near-term prices remain vulnerable to volatility.
Gold fell around 6.87% in October, ending the month at $3,875 per troy ounce, nearly 30% below its record high in late January, according to Quantum AMC. The decline came despite continued buying by long-term investors and central banks, suggesting that the correction was driven more by macroeconomic pressures and liquidity concerns than a deterioration in gold's fundamentals.
One of the biggest factors weighing on gold has been the combination of elevated crude oil prices, persistent inflation and expectations of tighter monetary policy in the US. Brent crude rose 13.6% in October, touching $118 per barrel, while US September inflation came in at 3.7%, above market expectations.
This strengthened expectations that the Federal Reserve could keep interest rates higher for longer, reducing the appeal of non-yielding assets such as gold.
Quantum AMC said the sharp fall in gold on October 22, even as US Treasury yields declined, pointed to forced selling and liquidity pressures. Investors facing losses elsewhere in their portfolios may have sold gold to raise cash, adding to the correction.