Major banks remain bullish on gold despite market volatility, forced selling and expectations of further US interest rate increases.
Gold has come under renewed selling pressure, falling below the important US$4,000 per ounce level as investors respond to rising bond yields, interest rate uncertainty and weakness across global equity markets.
Gold fell approximately 3.7% in one Friday trading session to US$3,870 per ounce, its lowest level in more than a year. The decline extended October’s losses to almost 7%, creating considerable uncertainty among short-term investors.
However, according to analysts at major international banks, the recent correction may have more to do with forced selling and market liquidity than any fundamental deterioration in gold’s long-term outlook.
For physical gold buyers, understanding the difference between short-term market movements and the underlying reasons for owning gold has never been more important.
Forced selling is putting pressure on gold
Carsten Fritsch, a precious metals analyst at Commerzbank, believes the recent decline has been excessive and difficult to justify based solely on economic fundamentals.
He points to investors selling gold to raise cash and cover losses elsewhere as equity markets experience corrections.
This type of selling can create opportunities for longer-term buyers. When investors are forced to liquidate assets, even traditionally defensive investments such as gold can experience sharp temporary declines.
Fritsch also questions whether expectations of further US interest rate increases fully explain the sell-off.
Although higher interest rates and bond yields can make gold less attractive to short-term investors, he notes that interest rate expectations and bond yields have eased following the Federal Reserve’s recent meeting.
His broader argument is that the underlying reasons supporting gold remain firmly in place.
The growing US debt problem continues to support gold
One of the most significant long-term considerations for gold is the enormous level of government debt, particularly in the United States.
Higher interest rates increase the cost of servicing government debt. This creates a difficult situation for policymakers.
The Federal Reserve must balance its responsibility to control inflation against the financial consequences of maintaining higher borrowing costs.
Fritsch argues that the US government’s debt burden could restrict how aggressively the Federal Reserve is able to raise interest rates, even if inflation remains stubbornly high.
This creates a potentially favourable environment for gold.
If governments struggle to control inflation without placing additional pressure on their finances, confidence in traditional currencies and government debt can come under pressure.
Gold has historically benefited from periods of monetary uncertainty, currency debasement and declining confidence in government financial management.
Standard Chartered still expects a significant gold recovery
Despite reducing its price forecasts following the recent correction, Standard Chartered remains positive about gold over the medium and longer term.
The bank’s investment strategist, Anthony Naab, maintains an overweight position in gold and has adjusted its three-month and twelve-month price targets to:
- US$4,350 per ounce over three months.
- US$4,700 per ounce over twelve months.
These forecasts suggest that the bank continues to anticipate a substantial recovery from the recent trading levels.
Naab believes the latest decline is primarily liquidity-driven rather than evidence that gold’s fundamental investment case has deteriorated.
He also argues that the US dollar and rising bond yields have created short-term headwinds, while continued central bank purchases and resilient investor demand provide longer-term support.
Central banks continue accumulating gold
One of the strongest arguments supporting gold is the continued demand from central banks around the world.
According to the World Gold Council’s third-quarter figures:
- Central banks purchased 321 tonnes of gold during the quarter.
- Gold-backed exchange-traded funds added another 211 tonnes.
- ETF inflows followed withdrawals during the preceding quarter.
Central bank buying is particularly important because these institutions are not necessarily responding to the same short-term market signals as speculative investors.
Many governments are actively diversifying their foreign currency reserves and increasing their exposure to physical gold.
Concerns about inflation, government debt, geopolitical uncertainty and dependence on the US dollar are encouraging central banks to reconsider the composition of their reserves.
China remains an important participant in this broader trend.
While October subsequently brought withdrawals from gold investment funds, the third-quarter figures demonstrate that substantial institutional demand existed before the latest correction.
The question now is whether investment demand returns as prices stabilise.
Interest rates and the US dollar: Short-term pressure, longer-term opportunity?
The Federal Reserve’s interest rate policy remains an important influence on gold.
Higher interest rates generally increase the attractiveness of interest-bearing investments compared with gold, which does not generate income.
Standard Chartered expects further US monetary tightening, forecasting another rate increase in December 2026 and a possible additional increase during the first half of 2027.
However, the bank also anticipates that the US dollar’s interest rate advantage could gradually narrow as monetary policy in Japan and Europe evolves.
A weaker US dollar would potentially provide additional support for gold prices.
The relationship between interest rates, inflation, government debt and gold is complex. What matters is not simply whether interest rates rise, but whether they rise sufficiently to compensate investors for inflation and the declining purchasing power of currencies.
If inflation remains elevated while governments struggle with increasing debt-servicing costs, gold may continue to attract investors seeking protection against monetary instability.
What does this mean for physical gold buyers?
Market corrections can be uncomfortable, particularly for investors watching daily price movements. However, physical gold ownership has traditionally been approached with a different mindset.
Gold is not simply a short-term trading instrument. It is a globally recognised monetary asset with thousands of years of history as a store of value.
The recent correction highlights an important distinction between owning paper exposure to gold and accumulating physical bullion.
Financial markets can experience forced selling, leveraged liquidations and sudden changes in investor sentiment. Physical bullion, however, remains a tangible asset that you own, independent of the daily movements of equity markets.
For those building a long-term physical gold holding, periods of volatility can provide opportunities to accumulate additional metal at lower prices.
This is where cost averaging becomes particularly valuable.
Rather than attempting to predict the exact bottom of the market, regularly purchasing smaller amounts allows buyers to accumulate gold across different price levels. This can help smooth the effects of volatility and remove some of the pressure associated with trying to time the market.
FirstGold: Build your physical gold and silver holdings one gram at a time
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We believe owning physical gold and silver is an important way to diversify wealth and protect purchasing power over time.
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You don’t need to predict the market. You need a strategy to accumulate through it.
Gold and silver prices will always fluctuate. There are no guarantees that prices will rise, and further corrections are possible. But the long-term monetary arguments supporting precious metals remain relevant: expanding government debt, inflation, currency debasement and growing demand for physical gold.
Rather than being distracted by every market correction, consider what you are accumulating and why.
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