Easing trade tensions lead to another gold price pullback; gold ETFs see largest single-day outflow in six months on Monday.

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On Tuesday, gold prices fell below $3,960 per ounce during trading, continuing the previous session’s decline after a sharp 3.2% drop on Monday. Easing trade tensions reduced market demand for safe-haven assets.

Last Monday, gold set a record high of $4,380 per ounce, but then sharply retreated. Even so, prices are still up about 50% so far this year. Factors driving the surge include continued gold purchases by global central banks, and the so-called “currency depreciation trade,” where investors avoid sovereign bonds and fiat currencies to hedge against mounting fiscal deficits. These factors have attracted both institutional and retail money into gold ETFs.

However, following the plunge in gold prices, gold ETFs reduced holdings by 448,706 ounces (around $1.79 billion) on Monday, marking the largest single-day decrease in six months.

Chris Weston, Head of Research at Pepperstone Group, noted in a report:

“Gold keeps making lower lows, and daily futures volumes stay elevated on down days, making it hard to call the bottom. In the short term, a smarter strategy may be to let others catch the bottom and buy on the rebound.”

Gold's dramatic swings became a hot topic at the London Bullion Market Association (LBMA) Precious Metals Conference in Kyoto, Japan this week. According to media reports, overall sentiment remains bullish. A survey of 106 participants showed they expect gold prices to approach $5,000 per ounce in a year.

However, John Reade, Market Strategist at the World Gold Council (WGC), said central bank demand is no longer as strong as before, and deeper corrections may actually be welcomed by professional traders.

This pullback could also create opportunities for central banks to increase gold reserves. According to an official at the LBMA meeting in Japan, the Bank of Korea is considering resuming gold purchases in the medium to long term; its last purchase was over a decade ago.

Bank of America analysts Michael Widmer and others said Tuesday that the recent gold rally is not abnormal compared to previous bull markets since 1970. They expect gold could fall back to $3,800 per ounce this quarter.

Although gold was previously overbought, from an asset allocation perspective, it remains underrepresented: gold still accounts for only about 5% of global stock and bond investments. Analysts note that while there have been calls to shift the traditional “60/40 stock/bond allocation” to “60/20/20 (stocks/bonds/gold),” most investors have yet to act.

In the U.S., the market widely expects the Federal Reserve to cut rates by another 25 basis points at its two-day meeting this week. Rate cuts typically support non-yielding assets like gold. Additionally, attention is on the shortlist of five candidates to succeed Fed Chair Jerome Powell, who is expected to step down in May next year.

In New York’s late trading on Tuesday, October 28, spot gold fell 0.69% to $3,954.94 per ounce, and dropped to $3,886.62 at 17:08 Beijing time, showing a V-shaped intraday trend. COMEX gold futures fell 1.25% to $3,969.40 per ounce.

Spot silver rose 0.50% to $47.0867 per ounce, then dropped to $45.5568 at 17:09, also showing a V-shaped reversal. COMEX silver futures rose 0.81% to $47.155 per ounce.

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