The yellow metal’s recent price drop reflects a confluence of technical selling and profit-taking, particularly as Chinese investors exit positions ahead of the Golden Week holiday. With US 10-year real yields hitting 18-year highs near 2.85%, the opportunity cost of holding non-yielding assets has become difficult to ignore. Markets are currently bracing for further Federal Reserve tightening, pricing in another three 25-basis-point hikes by next April.

Despite this rate pressure, gold ETF holdings have shown a surprising recovery, signaling that some investors remain focused on the long-term financial risks of high borrowing costs. However, a looming liquidity squeeze could override this sentiment. Strains in US corporate credit, evidenced by widening spreads in high-yield debt, suggest that investors may soon look to their most liquid assets to cover margin calls. In this climate, gold’s deep market liquidity turns into a double-edged sword: while it remains a vital hedge against systemic risk, it also serves as an immediate source of cash, likely weighing on prices in the short term.