Gold: buy the dip, or mind the drop?
It’s been a hugely popular asset to buy this year, but the price of gold has fallen sharply since peaking at almost $4,400 an ounce. Analyst John Ficenec discusses the pros and cons of owning the yellow metal.
29th October 2025 12:17
by John Ficenec from interactive investor
Gold has tumbled from record highs as the US and China make progress on a trade agreement and inflation fears begin to cool. With the price now in correction territory we take a look at whether it has further to fall or now is the time to buy the dip.
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Comex gold futures traded as low as $3,901 an ounce on 28 October, an 11% fall from last week’s all-time high just shy of $4,400, pushing the yellow metal into correction level. One of the main factors driving the market recently is easing tension between two of the largest economies in the world.
Source: TradingView. Past performance is not a guide to future performance.
US President Donald Trump is at the Pacific Rim summit in South Korea this week and told reporters ahead of a scheduled meeting on Thursday with Chinese premier Xi Jinping: “I have a lot of respect for Xi. I think we’re going to come away with a deal.”
US Treasury secretary Scott Bessent said that American and Chinese officials had agreed a “substantial framework” ahead of the talks.
Gold prices had been driven higher by rising global tension this year. “Global markets have navigated a volatile start to the year marked by trade tensions, unpredictable US policy shifts and frequent geopolitical flashpoints. The robust investment activity we have seen in the first half of 2025 underscores gold’s role as a hedge against economic and geopolitical risks,” said Louise Street, senior markets analyst at the World Gold Council.
Inflation, inflation, inflation
Inflation destroys money, so it’s no surprise that gold performed well this year, with inflation above target in both the UK and US, and tariff increases causing a price shock globally. However, the latest figures in both the UK and US surprised markets by showing inflation cooling, suggesting we may have passed the peak.
US inflation dropped to 3% for the first time since January. In the UK, the September Consumer Price Index (CPI) came in unchanged at 3.78% compared to the same 12 months last year, against an expectation of a rise to 4%. Analysts at Deutsche Bank called it possibly “the biggest surprise of the year”.
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It may not seem like much, but these data points remove a key support for gold. More importantly, falling inflation opens the door to a cascade of fiscal policy that knocks out more props from underneath the gold market.
Lower inflation allows the US Federal Reserve to be more aggressive in cutting interest rates, it also allows the Bank of England to cut rates sooner than expected. Cutting central bank reserve rates reduces the cost of borrowing, and when debt is cheaper, more value flows to equity.
So, what we have is risk off from the US and China trade talks combined with a fundamental shift in the world economic story supporting gold prices. With gold at record prices, it’s understandable why investors would take some profits and re-allocate to better value elsewhere.
Rate cliff
Nowhere has this been clearer than in longer-dated government borrowing rates that have fallen sharply from their highest levels in over a decade. The US 30-year Treasury yield has fallen from almost 5% in early September to around 4.5%, and in the UK the 30-year gilt has tumbled from 5.7% in early September to 5.15% and is approaching the lowest level since January.
Source: TradingView. Past performance is not a guide to future performance.
The benchmark US 10-year rate is now back below 4% for the first time this year, and the UK 10-year gilt at 4.38% is the lowest it has been since December 2024.
Source: TradingView. Past performance is not a guide to future performance.
Buy the dip, or mind the drop?
It could be that this is not just profit taking; rather it is the beginning of a fundamental shift in gold price support that will continue to see prices weaken. Inflation is expected to fall for the next 18 months, and if China and the US do reach a trade agreement, then it will further embolden equity investors.
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The gold price won’t crash, but it wouldn’t be a surprise to see it fall back to a more reasonable level. As Jim Reid, head of macro and thematic research at Deutsche Bank points out, recent gold prices were higher than their previous inflation-adjusted peak in January 1980, meaning that it has never been more expensive. Also, gold prices are still up around 55% so far this year, the strongest annual performance since 1979, when gold prices more than doubled after the oil shock triggered a huge wave of inflation.
Source: TradingView. Past performance is not a guide to future performance.
However, support for gold at around a $3,000 to $3,500 level is still strong, with demand rising at double digits, driven by buying in China, India and Europe, according to the latest data from the World Gold Council.
Central banks continue to diversify away from the US dollar and increase gold holdings. The most recent World Gold Council survey showed 95% of respondents believe that global central bank gold reserves will increase over the next 12 months.
So, while gold fever has sent prices to extreme levels, and it wouldn’t be a surprise to see at least a period of consolidation, the current supply/demand dynamics demonstrate why gold should always make up around 5-10% of a well-balanced portfolio of investments.
John Ficenec is a freelance contributor and not a direct employee of interactive investor.
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