• Gold's brief rebound above $3,960/oz faded as renewed selling pushed prices down 1.1% intraday.
  • Rising oil prices and expectations of a Fed rate hike in December are undermining the metal's appeal.
  • Investors are selling gold to cover losses elsewhere, while the World Gold Council cut its investment demand growth forecast.

A Fleeting Recovery

Spot gold staged a brief rally on Monday, climbing as much as 0.4% to $3,964 an ounce, but the gains evaporated as selling pressure resumed. By midday in London, the metal had reversed course, trading down 1.1% at $3,904.48, according to market reports. The intraday swing underscores the fragility of sentiment in a market whipsawed by shifting macroeconomic forces.

The initial uptick followed a sharp drop in oil prices, which had eased inflation concerns and temporarily boosted the appeal of non-yielding bullion. But crude rebounded as doubts emerged over progress in ending the U.S.-Iran war, reigniting inflation worries and reinforcing expectations that the Federal Reserve will maintain its aggressive tightening path.

Rates and Oil Weigh on Sentiment

Traders are now pricing a 74% probability of a quarter-point rate hike at the Fed's December meeting, according to Reuters (NASDAQ:TRI). Higher rates increase the opportunity cost of holding gold, which offers no yield, and a stronger dollar further dims its allure for foreign buyers.

"Investors are selling gold to cover losses and margin calls elsewhere rather than buying it as a traditional safe haven," said Tim Waterer, chief market analyst at KCM Trade. His comments help explain why uncertainty surrounding the U.S. midterm elections and the ongoing war in Ukraine has not translated into sustained safe-haven demand.

The World Gold Council added to the bearish tone on Thursday, cutting its forecast for growth in gold investment demand this year to 200 metric tons from 400 tons. The revision reflects weaker-than-expected retail interest and a sharp decline in jewellery consumption, which fell 17% year-on-year to 313 tons in the third quarter—the lowest for that period since 2000.

A Market Divided

Not all segments are weakening. Physically backed gold ETFs saw inflows of 211 metric tons in the third quarter, beating expectations despite higher bond yields and a stronger dollar. Central banks also remained voracious buyers, adding 321 tons in the quarter, a 42% increase from a year earlier, led by Poland and China.

That institutional support has provided a partial floor, but it has not been enough to offset the broader selling pressure. Gold is now roughly 29% below its record high of near $5,595 set in January, and the metal fell 6.8% in October alone.

What to Watch

The immediate focus is on the outcome of the U.S. midterm elections, which could reshape fiscal policy and regulatory sentiment. A surprise result could trigger volatility across asset classes, with knock-on effects for gold. Meanwhile, any signs of a breakthrough in U.S.-Iran negotiations could push oil prices lower, easing inflation fears and offering temporary relief to bullion.

For now, the market remains caught between competing forces: resilient central bank demand and geopolitical uncertainty on one side, and the relentless rise in interest rates and a strong dollar on the other. As Waterer put it, gold is "consolidating" after last week's losses rather than beginning a confirmed recovery.

Correction: An earlier version of this article misstated the percentage decline in jewellery demand. It fell 17% year-on-year, not 19%.