With signs of easing trade tensions between the United States and China ahead of the summit between the two countries, international gold prices fell on October 27 (local time), dropping below the $4,000 per ounce mark. Experts noted that while a short-term correction down to $3,700 is possible, in the long run, gold could recover to $5,000 per ounce next year.
Gold's Rally Pauses... Drops Over 9% in a Week
According to Reuters, as of 12:25 p.m. Eastern Time, the spot price of gold was trading at $3,991.39 per ounce, down 2.9% from the previous session. On the New York Mercantile Exchange (COMEX), December gold futures also plunged 3.7% to $3,985.9 per ounce as of 11 a.m.
Gold Prices Plunge Amid Expectations of Easing US-China Trade Tensions Fell Below $4000 Per Ounce... Down 9% in a Week Market Views It as a Healthy Correction to Cool Short-Term Overheating Some Experts Say It Could Drop to $3700 Analysis: "Speculative Bubble Deflating, Prices Reorganizing for a Rebound"
International gold prices surpassed $4,000 per ounce for the first time earlier this month and reached an all-time high of $4,381 on October 20. However, in just one week, prices have dropped by more than 9%.
This correction is attributed to expectations of easing US-China trade tensions. US President Donald Trump is scheduled to meet with Chinese President Xi Jinping during the Asia-Pacific Economic Cooperation (APEC) summit in Gyeongju, South Korea, this week. At the fifth high-level trade talks held in Malaysia on October 25-26, the United States agreed to postpone imposing an additional 100% tariff on Chinese goods, while China agreed to temporarily lift export controls on rare earth elements. US Treasury Secretary Scott Besant suggested at the ASEAN summit that a successful framework for discussion between the two leaders has been established, indicating the possibility of resolving the US-China conflict.
The gold market has described this downturn as a "healthy correction." Market participants believe this correction could continue for some time, with the possibility that gold could fall to $3,700 per ounce.
Nicholas Frappell, Global Head of Institutional Markets at ABC Refinery in Australia, stated, "This is clearly a correction phase, and such corrections do not end in just a few days," adding, "Gold prices could drop to $3,700 before testing new highs again."
Paul Fisher, Chairman of the London Bullion Market Association (LBMA), characterized the recent surge as a "bubble," saying, "Last week's drop in gold prices was an important move to clear out speculative positions and deflate the market bubble. Once the correction ends, the market will prepare for another rally."
Even optimists are wary of a potential sharp short-term decline. John Reade, Chief Market Strategist at the World Gold Council (WGC), noted, "Some investors actually see the $3,500 level as a healthy price," adding, "It is still historically high."
Major Banks Remain Optimistic... Gold to Reach $5,000 Next Year
Despite concerns about a short-term correction, the long-term outlook for gold remains bullish.
If the US Federal Reserve begins to cut interest rates in earnest, the dollar is likely to weaken. This weaker dollar could drive investors toward safe-haven assets, boosting demand for gold. Typically, when interest rates fall and the dollar weakens, real interest rates decline and gold's value as a store of wealth becomes more prominent, leading to higher gold prices. Continued gold purchases by central banks in major emerging markets such as China, India, and Brazil are also cited as factors supporting the uptrend. HSBC stated in a report, "Net purchases by central banks will remain at record-high levels," adding, "The move away from the dollar is a structural factor supporting gold's strength."
Federal Reserve rate cut and weaker dollar outlook gain momentum Continued gold purchases by emerging market central banks also positive “Competition in AI and critical minerals persists, uncertainties remain” HSBC and Bank of America predict gold price to reach $5,000 next year While gold stalls, New York stock market hits all-time high
Although US-China tensions appear to be easing, competition surrounding strategic industries-including AI, semiconductors, and critical minerals-has not been fully resolved, which could continue to influence gold prices. In such an uncertain environment, demand for gold as a safe-haven hedge is likely to remain steady.
Based on these factors, global investment banks such as HSBC, Bank of America (BoA), and Societe Generale forecast that gold prices will reach $5,000 per ounce next year.
In its report, Bank of America stated, "If the Federal Reserve enters a rate-cutting cycle, real interest rates will fall, increasing gold's investment appeal. Combined with a weaker dollar, this could further boost gold's momentum." Societe Generale also noted, "Gold purchases by central banks and institutional investors are supporting structural demand."
While gold prices have stalled, the New York stock market rallied on expectations of a US-China trade agreement. The S&P 500 index surpassed the 6,800 mark for the first time ever. Shares of AI and semiconductor companies such as Nvidia and Broadcom led the rally. Tesla and Qualcomm also rose more than 4%, supporting the market's upward trend. Qualcomm soared as much as 11% during the session, hitting an all-time high on news of its new AI chip launch.
Sam Stovall, Chief Investment Strategist at CFRA Research, commented, "If the US and China reach a favorable agreement, both countries will return to a path of cooperation. A shift away from excluding China in the tech industry would have a very positive impact on the market." He also predicted, "In an environment of expected rate cuts and economic slowdown, small- and mid-cap stocks will outperform large-cap stocks."
