Gold could remain under near-term pressure as elevated US Treasury yields, a firmer US dollar and renewed expectations of further Federal Reserve tightening continue to raise the opportunity cost of holding the precious metal, according to OCBC.
The bank said the macro backdrop turned more challenging in September after the Fed raised rates by 25 basis points and maintained a tightening bias, while renewed Middle East tensions pushed oil prices back above US$100 per barrel, adding to inflation concerns and contributing to higher bond yields.
OCBC said the combination of higher long-end yields and a stronger dollar remains unfavourable for gold in the short term.
Despite softer prices, investment demand has remained relatively resilient. Bloomberg-tracked gold exchange-traded fund holdings continued to increase even as gold traded sideways to lower, suggesting that underlying investment demand remains sticky.
At the same time, managed-money positioning became less stretched and demand for upside options eased, indicating that speculative positioning has cooled while ETF demand remains firm.
OCBC said this combination suggests the market is not becoming progressively more crowded as gold consolidates.
The bank remains cautious in the near term given elevated oil prices, high yields and renewed expectations of further Fed tightening.
However, it noted that a significant amount of hawkish repricing has already taken place, making upcoming US labour and inflation data an important test for the market.
Softer readings from indicators such as personal consumption expenditure inflation and payrolls could reduce expectations of further rate increases and ease pressure from both Treasury yields and the dollar.
OCBC also highlighted potential seasonal support from India as the market approaches Diwali on Nov 8, with Dhanteras traditionally an important gold-buying period.
The bank therefore maintained a constructive medium-term bias, although it said a more durable recovery would likely require some moderation in the current rates and oil-price backdrop.
Resilient ETF demand and official-sector purchases are expected to provide some support during price corrections.
From a technical perspective, gold was last seen around a multi-week low near US$4,140 an ounce.
OCBC said failure to regain the US$4,300-US$4,350 area, which coincides with key 21-, 50- and 100-day moving averages, could keep bearish pressure intact.
Immediate support is seen at US$4,100, followed by US$4,000 and US$3,944, while resistance is pegged at US$4,300-US$4,350 and US$4,460.
