📝Gold May Test Below $1,800/oz Before Turning Higher: UBS Strategy

while investors fail to blame gold's weakness on rates and the USD, there has been little bounce after gold price pulled back by $100 per ounce over the last two weeks. Participation from macro investors is muted and we sit in a frustrated market that sees each small rally is capped quickly across the board. Shall we call this a healthy pullback? I do think so, but timing is everything and it feels as gold price "should" still have a bit more to test lower before the next leg higher. While I think gold should test below the $1800 key level, market may not give investors the great buy-the-dip level. After testing 1816.10, gold manages to hold while rates and dollar are both higher. ETF selling remains small after the large one off seen last week. October seasonality is positive. Indian demand is showing signs of picking up. European private bank demand is coming alive. And China's return next week that could add to support. It is a crowded short gold market which could square up into nonfarm payrolls and the US long weekend.

What stands out is volatility as it has bled lower with supply constant. 1-month vol traded sub 9. Now it feels as if tat tide is changing. 1-month vol is back at 12 as demand for downsides had accelerated and supply is now limited. It sure feels that vol has seen the lows. So the message is don't give up hope, Gold upside could be very interesting in Q4. - UBS Strategy