- The extraordinary rise in gold prices this year has entered a phase of slowdown. Investors are reassessing the extent to which the 2025 scenario — interest rate cuts, fiscal pressures, geopolitical factors, and central bank demand — has already been priced in.
- Two consecutive weekly declines following a nine-week rally that boosted prices by over 27% suggest a release of pressure rather than a trend reversal.
- Although short-term momentum has weakened, the fundamental case for owning gold remains intact — the only uncertainty is the timing of the next upswing.
According to Ole Hansen, Head of Commodity Strategy at Saxo Bank, the spectacular rise in gold prices this year has entered a correction phase. The metal, which has gained approximately 54% since the start of the year, has just recorded its first back-to-back weekly declines since June, amounting to a nearly $500 pullback from October’s record high. Market sentiment has shifted from euphoria to caution, and investors are reassessing how much of the 2025 outlook — rate cuts, fiscal strains, geopolitical risks, and central bank demand — has already been discounted.
Short-Term Challenges
Post-Diwali Pause. The festive season in India traditionally brings a surge in jewelry demand, followed by a drop. Diwali in 2025 was no exception — demand for precious metals, especially silver, reached record levels, driven by retail interest, local shortages, and rapid price increases. Gold was also in high demand, but record-breaking prices and a weakening rupee limited jewelry sales. The market has now entered a typical post-holiday lull, which is likely to stabilize by the end of the year, supported by the latest price correction.
Tax changes in China. China has introduced a more structural shift by abolishing long-standing VAT exemptions for certain jewelry retailers who purchase through the Shanghai Gold Exchange and Futures Exchange. While this slightly raises retail costs and may limit jewelry sales, its macroeconomic impact is minimal. Investment gold — bars, coins, and ETFs — remains VAT-exempt, keeping the main channels supporting record physical demand in China intact.
Powell, caution, and a stronger dollar. After the October rate cut, the Federal Reserve signaled that the December decision “isn’t a given.” With a U.S. government shutdown looming, the FOMC is operating with limited visibility, and Chairman Powell’s cautious tone has contributed to a stronger dollar and higher real interest rates, further cooling market sentiment.
U.S.–China: Progress without a breakthrough. Late October brought reports of progress in U.S.–China negotiations — covering tariffs, cooperation on illegal fentanyl production, and export controls. Yet the market remained cautious. Investors recognize that deeper strategic tensions — in technology, supply chains, and industrial policy — remain unresolved. While the announcement may have reduced tail risks, it did little to alter long-term arguments for holding defensive assets.
Technical Picture and Market Sentiment
From a technical perspective, the current pullback has been relatively mild — two weeks of declines after a nine-week, 27% surge. In our view, this was a healthy correction, painful for recent buyers but more indicative of release of pressure than a shift in trend. Technical support is forming in the $3,835–$3,878 area, aligning with the 50% Fibonacci retracement of the latest rally and the 50-day moving average. A deeper decline is possible if risk appetite in equities persists and the dollar continues to strengthen.
During the rally, ETF holdings rose by 484 tonnes since the start of the year and have now stabilized at levels surpassing the combined outflows of the past three years. Futures market data — despite the lack of weekly COT updates — suggest a moderate trimming of long positions rather than mass liquidation. Central banks remain a key stabilizing force — according to the World Gold Council, they bought 220 tonnes in Q3, bringing total purchases this year to 634 tonnes — approaching last year’s record. Continued public sector demand is still containing downside volatility.
Why the Outlook Remains Positive
Despite a slowdown in short-term momentum, the fundamental case for holding gold remains intact — only the timing of the next upswing is uncertain.
Concerns over public debt. The cost of servicing U.S. government debt is growing faster than revenues, which may force policymakers into implicit financial repression. In the medium term, real rates may stay artificially low, historically a bullish environment for gold.
Currency depreciation and diversification. Continued use of monetary expansion to finance fiscal policy erodes trust in fiat currencies. Investors and central banks are increasing material reserves as a hedge.
Public sector demand. Central banks, especially in emerging markets, are continuing to diversify reserves, sustaining strong demand for gold. Their steady accumulation has become a structural market feature and a key buffer during speculative sell-offs.
Monetary policy direction. Despite Powell’s caution, macro data indicates that the Fed’s next significant move will be further easing. A softening labor market and slowing nominal GDP growth could lead to additional rate cuts in 2026 — paving the way for further gold appreciation, especially if inflation remains at 3% or higher.
Short-Term Outlook
The recent correction suggests that this year’s peak in gold prices may be behind us, although the current situation resembles consolidation more than capitulation. The forces that pushed prices above $4,000 — fiscal instability, persistent inflation, and unrelenting public sector demand — are still in play. However, a deeper pullback cannot be ruled out as the market sheds excess speculation and rebuilds confidence.
The previous major consolidation after May’s record surge to nearly $3,500 lasted around four months. A breakout in August triggered the nine-week, 27% rally. If the current consolidation follows a similar timeline, we may see another range-bound period followed by renewed strength in early 2026. Until then, increased volatility and alternating sentiment shifts could test the convictions of both buyers and sellers.
The current pause in gold trading looks more like a breather than a breakdown. Seasonal weakness, temporary disruptions from Chinese policy, and a stronger dollar explain the short-term dip, but none of these factors alters the long-term outlook. Once this correction phase ends, the same forces that drove this year’s rally — debt, inflation, and demand for diversification — are likely to reemerge, paving the way for another significant rise in 2026.
– The recent swings in gold prices show how quickly market enthusiasm can give way to correction — and why portfolio diversification remains essential. While gold is still seen as a safe haven, it no longer guarantees stable short-term returns. That’s why combining traditional assets like bullion or bonds with investments in tech, energy, and sustainability is becoming increasingly important. Such a portfolio better weathers market turbulence and captures new sources of growth. In today’s macro environment, balance and resilience are key – says Aleksander Mrózek, Key Client Relationship Manager for the CEE region at Saxo Bank.
Source: https://ceo.com.pl/dwutygodniowa-korekta-po-dziewieciu-tygodniach-wzrostu-co-dalej-ze-zlotem-70993
