Gold’s 6.3% October fall may be a correction, not prolonged downturn: WGC report

Gold prices may be approaching an interim bottom, with the broader macroeconomic environment supporting a potential recovery despite the recent correction, the World Gold Council (WGC) said in its latest report.The council noted that two of the three historical conditions associated with gold price recoveries are already in place.The WGC said the current decline was more likely to be a correction than the beginning of a prolonged downturn similar to the period following gold's 2011 peak, as the underlying macroeconomic and fundamental conditions remain considerably stronger."Our simple framework suggests gold may be nearing an interim bottom: two of three conditions are in place. More importantly, unlike in 2011, the macro backdrop supports a recovery," the report said.Gold closed October at $3,913 per ounce, registering a 6.3 per cent decline during the month. Prices fell across all major currencies tracked by the council. The metal is currently around 25 per cent below its January 2026 record high of $5,405 per ounce, according to the WGC.Two key conditions for gold recovery already in placeThe council identified technical weakness in gold prices and a strengthening US dollar as two signals suggesting that the recent sell-off could be nearing exhaustion. However, speculative positioning in the futures market remains elevated, meaning the third condition for a sustained recovery has yet to be met."Today, two of the three conditions are in place. Gold is trading well below its 200-day average and the dollar has rallied into its top tier. Positioning, however, remains elevated," the report stated.The WGC's analysis of gold bear markets since 2005 found that periods in which at least two of these three conditions were present generated a median three-month forward return of 4.2 per cent, with positive returns in 90 per cent of observations.When all three conditions were met, gold recorded positive returns in all five historical episodes analysed by the council. However, it cautioned that the historical sample was limited and that speculative futures positions would need to decline further before a more sustained recovery could take hold.On the technical front, gold is trading around 10 per cent below its 200-day moving average, while remaining above the 38.2 per cent Fibonacci retracement level of $3,857 per ounce.The council said prices could still test this support level as downward momentum continued, but indicated that a further decline could offer an attractive entry opportunity for investors.WGC says current correction differs from 2011 downturnThe WGC highlighted differences between the current market environment and the conditions that followed gold's 2011 peak. It said real yields were currently in restrictive territory, the US dollar was expensive and geopolitical risks remained elevated.These factors, according to the council, made the post-2011 multi-year decline a poor comparison for the present correction."The fundamental backdrop increases the likelihood that this is a correction rather than the start of a prolonged downtrend," the report said.The council also identified policy decisions following the US midterm elections, developments in equity and credit markets, and changes in inflationary pressures as important factors that could influence gold prices during the remainder of 2026.It cautioned that further weakness in equity and credit markets could increase the attractiveness of US Treasuries, potentially reviving the unusual positive correlation between gold prices and bond yields observed in recent weeks.Oil prices and US rate outlook weigh on bullionMeanwhile, gold prices eased on Friday as a rebound in crude oil prices fuelled inflation concerns and strengthened expectations that interest rates could remain elevated for longer.Spot gold fell 0.6 per cent to $4,063.39 per ounce by 0248 GMT, although it remained up 4 per cent for the week. US gold futures for December delivery declined 1 per cent to $4,072.90."Crude oil has rebounded mostly over the past day, which remains one of the inflationary knockbacks pressuring gold," Ilya Spivak, head of global macro at Tastylive, said.Higher energy prices can reinforce expectations that the US Federal Reserve will maintain elevated interest rates for longer, increasing the opportunity cost of holding non-yielding bullion.Markets were also awaiting the US non-farm payrolls report, due later on Friday, while traders were pricing in a 68 per cent chance of a Federal Reserve rate hike in December, according to CME's FedWatch tool.You use AI every day. Now get your AI Quotient. Take the AIQ test.