Central banks are "buying up" ETFs, "attracting capital"—why is gold still falling?

On Friday (October 23), international gold officially fell below the $4,000 threshold, closing at $3,995.54 per ounce, with a weekly decline of about 4%. However, even as gold prices plummeted, the People's Bank of China continued to increase its holdings, gold ETFs continued to attract capital, and the global trend of central bank gold purchasing remained unchanged. Why can't structural buying "support" gold prices?

[Fundamental News]

In September, the People's Bank of China increased its gold holdings by 23 tons, marking the largest single-month increase since October 2023 and extending its streak of monthly gold purchases to 23 months. By the end of September, official gold reserves had risen to 2,410 tons. Data from the World Gold Council show that global gold ETFs saw record net inflows of $31 billion in the third quarter, with total holdings climbing to a historic high of 4,256 tons. Morgan Stanley Head of Metals Strategy Amy Gower explicitly stated that gold has strong bottom support at $4,000.

This week's sell-off came from two directions: interest rate hike expectations driven by oil prices and a liquidity squeeze triggered by tech stocks. The former raises the opportunity cost of holding gold, while the latter forces investors to sell gold for cash. The global financial market has experienced violent swings, with most risk assets falling, oil and US Treasury prices rising... Sharp declines in tech stocks and the ensuing liquidity squeeze have increased the selling pressure on metals and precious metals.

The key issue is that buying is "allocative," while selling is "transactional." Central bank gold purchases and ETF inflows are long-term behaviors and will not change due to a week of price fluctuations; speculative capital selling is short-term and can be released in a matter of days. When short-term selling pressure overwhelms long-term buying support, prices fall. But this does not mean that structural buying is invalid—it only means that, in extreme market conditions, short-term forces can temporarily outweigh long-term ones.

CME FedWatch shows that the market expects an approximately 92.8% probability of no change at next week's (October 27-28) meeting, but the probability of a 25-basis-point rate hike in December has surged from about 30% previously to nearly 80%. As a zero-yield asset, gold's valuation continues to be suppressed as real interest rate expectations rise. David Meger, Director of Metals Trading at High Ridge Futures, pointed out: "Rising energy prices are intensifying inflation concerns, and the market is worried that the Federal Reserve will continue to raise interest rates—this is the core reason for the sell-off."

The September PCE Price Index to be released on October 29 is the most crucial data next week, as it will directly test whether the "second-wave inflation" narrative holds. If the PCE shows core inflation rebounding more than expected month-on-month, the "oil prices → inflation → rate hikes" chain will be further confirmed, and gold prices will face renewed downward pressure; if the PCE is weaker, it could ease market bets on a December rate hike and give gold a breather.

[Latest Gold Market Analysis]

From a technical perspective, international gold prices did not accelerate downward after breaking below $4,000, closing just slightly under this level on Friday, indicating some support below. The daily RSI is near 28, within oversold territory, with stochastics flattening out, and technical conditions for a short-term rebound are accumulating.

In terms of key levels, 4050–4070 is initial resistance, with stronger resistance at 4100–4120. To the downside, 3970 is initial support, and 3900 is deeper support. Some analysts note that gold prices are likely to show a wide-range, "capped above and floored below" pattern in the fourth quarter, with the main trading range expected between $4,000 and $4,400 per ounce. As short-term selling pressure is exhausted and central banks continue to accumulate monthly purchases, the "gold content" at the price bottom will be more significant than the price level itself. For long-term allocators, below $4,000 may indeed be what UBS calls a "structural buying opportunity."