Why gold is losing its shine: Goldman breaks down the recent sell-off

Gold prices experienced a significant sell-off in late October, driven by speculative traders liquidating their positions. According to CFTC data, Managed Money, Other, and Non-Reportable traders collectively offloaded $8 billion in gold between October 20 and October 27, marking a fifth consecutive week of bearish flows. The weekly outflow amounted to $19.5 billion since September 22, with $5.2 billion in long liquidations and $2.8 billion in newly established short positions, primarily led by the "Other" and "Non-Reportable" categories, which accounted for about 95% of the total outflows.

Despite a 11-basis-point drop in U.S. 10-year real yields and a 4.1% rally in Brent crude oil, gold struggled to gain traction, slipping 1.6% during the observation period. Analysts attributed the weakness to fears over sovereign liquidity management and the greenback's strength. Even though Managed Money net positioning remained low, "Other" gross long positions stayed above their two-year median, indicating potential for further liquidations.

As gold's weakness deepened, the derivatives market reacted with increased downside hedging and bearish bets, with gold's three-month implied volatility rising and the 25-delta put-call skew spiking to the 85th percentile of its one-year range.