Goldman Sachs Explains: Why Gold Fell Below $4,000 and Why Further Declines Are More Likely
- Core View: Gold fell anomalously despite the presence of traditional bullish factors, breaking below the $4,000 mark. The main cause is concentrated selling by large "other" category accounts for liquidity needs, rather than hedge funds; the selling has not yet been fully unwound, and short-term downside risks remain.
- Key Elements:
- December gold futures settled at $3,898.90/oz, down 3.3% in a single day and approximately 30% from the January all-time high.
- Cumulative gold futures selling since September 22 totals $19.5 billion (approximately 150 tons), with outflows for five consecutive weeks and an accelerating pace.
- The "other" and non-reportable categories contributed approximately 95% of the selling volume, with hedge funds largely absent.
- Three bullish factors—falling real interest rates, stock market pressure, and geopolitical tensions—all failed simultaneously, and gold instead fell 1.6%.
- Central bank gold purchases of approximately 85 tons/month are far slower than the selling pace, creating a "price-insensitive" tug-of-war between buyers and sellers.
- The "other" category's long positions account for approximately 18% of open interest, still above the two-year median, indicating positions have not been fully unwound.
- Options put skew rose to the 85th percentile of the one-year range, with $3,850 seen as the next key support level.
Original author: Zhao Ying
Original source: Wallstreetcn
Gold is experiencing a textbook failure. All the macroeconomic factors that should have driven gold prices higher appeared simultaneously, yet gold moved in the opposite direction and fell below the key psychological threshold of $4,000 last Friday. Goldman Sachs' latest analysis reveals the real driver behind this anomalous selloff and warns that the market structure has not yet cleared, with downside risks still unresolved.
On Friday, December gold futures settled at $3,898.90/oz, down 3.3% on the day, with spot gold touching its lowest level since October 2025 and having fallen roughly 30% from its record high of nearly $5,600 in January. Goldman Sachs' commodities team noted in its weekly report that the break below $4,000 occurred against a backdrop of weekend geopolitical risk and an overall contraction in risk appetite. CME volume that day surged 80% versus the prior session, and GLD ETF saw approximately $4 billion in single-day turnover, ranking seventh among all ETFs by trading volume that day.
Goldman analyst Robert Quinn noted in the report that since September 22, the market has sold a cumulative $19.5 billion in gold futures positions, with the pace of selling continuing to accelerate. Notably, the main sellers in this round were not hedge funds, which are typically blamed, but rather capital from the "other" category and non-reportable category, which together accounted for about 95% of total selling. Meanwhile, bearish sentiment in the options market has risen to the 85th percentile high for the year, with the market actively positioning for further downside protection.
The core contradiction in this selloff is that the structural buyers supporting gold prices—central banks—remain present and continue to enter the market, but their pace of buying is far slower than the current pace of selling. "Price-insensitive" buyers have met equally "price-insensitive" sellers: central banks take all they can get regardless of price, while large holders such as sovereign states, in order to meet liquidity needs, likewise dump gold—their most liquid reserve asset—without regard to price. In the tug-of-war between these two forces, the faster side has temporarily gained the upper hand.
Scale and Pace of Selling: Five Consecutive Weeks, $19.5 Billion
According to Goldman Sachs' analysis of CFTC positioning reports, speculative gold selling further accelerated during the observation window from October 20 to 27. Managed money, other categories, and non-reportable categories combined sold $8 billion, marking the fifth consecutive week of bearish fund outflows, with cumulative selling over five weeks reaching $19.5 billion, including $5.2 billion in position liquidations and $2.8 billion in newly established shorts.
In terms of scale, at roughly $4,000/oz, $19.5 billion corresponds to about 4.9 million ounces, or approximately 150 tonnes of gold. Goldman Sachs' own central bank gold purchase tracking model shows that the official sector is currently buying gold at a pace of about 85 tonnes per month. In other words, speculative capital's selling over five weeks is equivalent to nearly two months of total central bank purchases.
More noteworthy is the composition of the sellers. Hedge funds (managed money) were almost absent from this round of selling; the "other" category and non-reportable category together contributed about 95% of the selling volume, with the "other" category's long liquidation reaching $4 billion, making it the largest source of selling. The "other" category under CFTC definitions covers family offices, proprietary traders, and other large non-hedge-fund accounts—"slow money" with lower turnover and stickier positions.
All Macro Signals Have Failed: The Shadow of Sovereign Liquidity Management
What is anomalous about this gold price decline is that all traditional bullish factors were in place. Within the observation window, the US 10-year real yield fell 11 basis points, equities came under pressure, and geopolitical tensions in the Middle East persisted—three factors that have historically been gold's most reliable upward catalysts. Yet gold still fell 1.6% during this period.
Goldman Sachs' Robert Quinn attributed part of the reason to "concerns about sovereign liquidity management" and a stronger dollar. Brent crude rose 4.1% over the same period, while the dollar index gained 0.6%. Goldman noted that the "other" category's long positions showed "moderate negative correlation" with both the dollar and Brent crude on a rolling 6-month basis—meaning that when oil prices and the dollar strengthen, such longs tend to liquidate and exit.
The phrase "sovereign liquidity management" points to a possibility that unsettles the market: as Brent crude continues to rise and regional conflicts persist, some oil-importing countries and even sovereign entities in oil-exporting countries may need dollars more than they need to hold gold—and gold happens to be the most liquid item in their reserve assets. Goldman also noted that recently a large volume of physical gold has flowed to London—and gold bars flowing into London are precisely the bars that can be sold in the London market.
Positions Not Yet Cleared: Downside Risks Remain
Goldman Sachs explicitly stated that this round of selling is not over. As of October 27, the "other" category's long positions remained above two-year median levels on both notional size and as a percentage of open interest. The category's long positions as a share of open interest climbed to about 20% in mid-October—the highest reading in Goldman's one-year chart—and although it has since fallen to about 18% after recent selling, it remains well above the roughly 11%-12% low seen in February.
The COT data has a cutoff date of October 27, after which market conditions deteriorated further. Goldman data shows that from October 27 to 30, gold fell another 4.3%, with Brent crude rising a further 3.7% as the main suppressing factor—the decline in the dollar and real yields could no longer provide support for gold.
At the ETF level, as of last Thursday, GLD's holdings remained only about 1% below their all-time high. Goldman estimates that even if all of Friday's ETF outflows came from position reductions, that would amount to only about 1 million ounces, while GLD's total holdings exceed 100 million ounces. This means potential selling pressure remains considerable.
Options Market: Bearish Sentiment Rises to Yearly High
Signals from the options market are equally unpromising. According to Quinn's report, gold's 3-month implied volatility and the normalized 25-delta put/call skew both rose, with the latter reaching the 85th percentile of its one-year ranking.
Goldman data shows that skew climbed sharply from about -10 in September to about +6, while 3-month implied volatility recovered from near its 2026 low of 19% to above 21%. On Friday alone, implied volatility jumped 3.5 vol points, and two-week high-frequency realized volatility has run to 18.5. Six weeks ago in September, the market was scrambling to buy calls; now, the premium on puts has risen to the 85th percentile high.
In response, Goldman Sachs' commodities trading desk said it currently has "limited options and delta risk exposure" and is waiting for signals to re-enter, having not yet deployed additional risk on the long side.
The Next Support Level and the Long-Term Logic of Structural Longs
Goldman Sachs' commodities trading desk views $3,850 as the next key support level, while acknowledging that this is a "moving target," and candidly admitted that its earlier judgment that $3,950 would hold has been proven wrong. $3,850 is less than 1.5% below the current futures price of $3,898.90, and also below the $4,070 near-term floor set by Goldman's commodities research team last month in its "hawkish Fed downside scenario"—at which time the team believed sustained central bank buying would gradually raise that floor.
The structural logic supporting gold prices has not changed: central banks continue to buy gold, the de-dollarization trend has not reversed, and Goldman's research team maintains its year-end 2027 gold target of $5,400, believing that official gold purchases will be the main driver toward that goal.
However, the pace of structural buying is slow, while the current pace of selling is faster. With the "other" category's long positions still above the two-year median, options skew at elevated levels, the trading desk standing pat, and the market pricing about a 75% probability of a Fed rate hike in December, Goldman believes the path of least resistance is still a move lower first—testing the $3,850 support, with the possibility of a break below—before the window opens for central banks to step in and buy the dip. This path would be even clearer if oil prices continue to rise during the "post-midterm-election escalation window" that the commodities team is watching.
