(Kitco News) - Gold’s drop below $4,000 last week is starting to attract some early attention as the two-month downtrend has pushed prices toward oversold territory. However, according to one market analyst, the precious metal needs to hold current levels or could see significantly lower prices.
In her latest precious metals report, Suki Cooper, Global Head of Commodities Research at Standard Chartered Bank, noted that global gold-backed exchange-traded products (ETPs) saw renewed outflows late last week, ending a period of relatively resilient investment demand.
“Notably, the sell-off extended beyond gold across assets, reflecting tech jitters and liquidity needs to meet margin calls or generate cash,” she said.
Looking at gold’s technical price action, Cooper said that the market needs to hold support at $3,886 an ounce. A sustained break below that level could expose the market to a much deeper correction.
Although the precious metal is approaching oversold territory, Cooper noted that there is still considerable downside risk as elevated energy prices continue to drive inflation pressures higher, forcing investors to reassess expectations for U.S. monetary policy.
"Crucially, gold will need to establish a floor as higher oil prices keep inflation risks in focus and the potential for further rate tightening weighs on the metal," she said.
Despite the near-term risks, Standard Chartered remains bullish on gold over the longer term. The bank continues to forecast an average gold price of $4,650 an ounce in the fourth quarter, rising to $4,850 in the first quarter of 2027.
The bank's bullish outlook comes even as expectations for further Federal Reserve tightening remain elevated.
According to Standard Chartered, markets see less than a 10% chance that the Federal Reserve will raise interest rates at Wednesday's monetary policy meeting. However, investors are pricing in an 86% probability of a rate hike in December, following the U.S. midterm elections.
Cooper noted that the U.S. 10-year Treasury yield has fallen to around 4.97%, down from 5.3% earlier this month. However, the decline in yields has provided little support for gold as investors remain focused on persistent inflation and the possibility of additional monetary tightening.
At the same time, the U.S. dollar continues to represent a significant headwind for the precious metal. Standard Chartered noted that gold's three-month rolling correlation with the U.S. dollar remains at negative 47%, making the greenback one of the most consistent drivers of price action. (Kitco Global Index shows how much of today's gold move is the dollar versus the gold market itself.)
While macroeconomic conditions remain challenging, Cooper said investment positioning suggests the market may be approaching a potential bottom.
According to the report, speculative investors have reduced their gold exposure for eight consecutive weeks, with profit-taking and long liquidation driving positioning to its lowest level since May.
Meanwhile, global gold-backed ETP holdings declined by 1.3 tonnes last week, although flows remain marginally positive for October. Cooper estimated that at current gold prices, at least 350 tonnes of ETP holdings have moved into loss-making territory, potentially leaving the market vulnerable to further liquidation.
Nevertheless, she said that some short-covering activity suggests speculative investors may be starting to look for a price floor.
Although Western investment demand has weakened, Standard Chartered expects physical demand from Asia to provide some support in the coming weeks.
In particular, Cooper said that India's upcoming Diwali festival on November 8 could generate renewed buying interest after a disappointing start to the seasonal gold market.
Indian gold imports fell 83% year-over-year in September to just 13.9 tonnes, their weakest monthly level since January 2023. Imports during the first nine months of the year were down 17% from the same period in 2025, putting the country on track for its weakest annual imports since at least 2020.
However, Cooper noted that weaker-than-expected monsoon conditions and elevated prices have delayed seasonal purchases, suggesting that demand could pick up in the next two weeks as retailers prepare for the festival.
Meanwhile, China's gold market continues to demonstrate resilience. September imports rose 34% year-over-year to 144.9 tonnes, a three-month high, while year-to-date imports reached 1,286 tonnes, up 67% from the same period last year.
Cooper said that central banks and ETP investors have generally viewed price corrections as buying opportunities throughout much of the year, helping to underpin the bank's constructive longer-term outlook.
However, she cautioned that the coming weeks could remain volatile, particularly if oil prices continue to rise and inflation expectations remain elevated.
"Our longer-term view on gold remains unchanged, but the coming weeks could see gold continuing to test the floor if oil prices extend their gains and keep inflation expectations elevated," she said.
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