Gold Price Plummets on 27-28 Oct: Has the Turning Point Arrived?

1. Introduction

TradingKey - From  27 to 28 October, gold prices plunged sharply, breaching the $4,000 level and now approaching $3,900 per ounce (Figure 1). This article analyses the drivers behind the steep decline and provides a medium- to long-term outlook, concluding that the bullish trend for gold remains intact. For investment strategies, we believe any short-term decline presents a good opportunity to enter the gold market.

Figure 1: Gold Prices (US$/Oz)

Source: Refinitiv, TradingKey

 2. Profit-Taking by Investors

Gold price volatility is never driven by a single factor. The 27 October plunge was an inevitable “high-altitude correction” after a parabolic rally, but the deeper catalysts lie in shifting macro conditions and a reversal in market sentiment. The primary trigger was widespread profit-taking. The 2025 gold bull market has been explosive, surging from $2,657 per ounce at the start of the year to a mid-October peak of $4,357—a staggering 64% gain.

This rally was fuelled by Fed rate-cut expectations, geopolitical tensions (including escalating Middle East conflicts and U.S.-China trade frictions), and relentless central bank gold buying. Yet, as history repeatedly shows, overextended asset prices trigger technical overbought signals and unleash selling pressure. The 5.3% single-day drop on 21 October was a clear manifestation of massive speculative capital flight.

3. Dollar Index Rally and Optimistic U.S.-China Trade Signals

Second, a resurgent U.S. Dollar Index amplified downward pressure on gold. As a dollar-denominated commodity, gold exhibits a strong inverse correlation with the dollar. Since mid-September, the dollar has rebounded sharply from its cyclical lows. This sustained dollar strength elevates the opportunity cost of holding non-yielding gold, prompting capital outflows from the metal into U.S. equities.

Finally, optimistic signals from U.S.-China trade talks further eroded gold’s safe-haven appeal. On 27 October, rumours of an imminent bilateral agreement triggered a sharp gold sell-off. Easing trade tensions reduces global supply-chain risks, dampening fear of “black swan” events and diminishing gold’s role as portfolio insurance.

4. Outlook for Gold Prices

Despite the recent sharp correction in gold prices due to the aforementioned factors, the bullish logic for gold in the medium to long term remains solid, and short-term pullbacks will not alter its upward trend over the longer horizon, as the fundamental drivers behind gold's rally remain intact. First, the Federal Reserve is in a rate-cutting cycle, with the market expecting another 25 basis point cuts on 29 October and 10 December, respectively; furthermore, we anticipate that accommodative monetary policy will continue into 2026, which will push down real interest rates and significantly reduce the opportunity cost of holding gold.

Second, geopolitical risks are highly likely to resurface—the Russia-Ukraine conflict may escalate, the chaos in the Middle East could reignite at any time, and such escalating tensions will continue to strengthen gold's safe-haven appeal. Third, global trade frictions remain uncertain, as Trump's erratic foreign policies will continue to fuel volatility in the global trade landscape, and when combined with the unchanging broader trend of "de-dollarisation," this will sustain the rise in gold's strategic value. Supported by these multiple factors, we maintain a positive outlook on gold prices; for investment strategies, we believe any short-term decline presents a good opportunity to enter the gold market.