The Gold Selloff Deepens. A ‘Sword of Damocles’ Is Hanging Over the Yellow Metal.

One factor that has fueled gold’s rise is a weaker yen. It’s also a factor that gold bulls should be more wary about now. (Brendon Thorne/Bloomberg)

Key Points

• Gold prices are nearing a correction, defined as a 10% decline from a recent peak, after trading as low as $3,937.10.
• The Federal Reserve’s stance on interest rates, with no further cuts expected, makes other assets more attractive than gold.
• Japan’s potential shift from ultralow interest rates could reduce gold demand, impacting a significant source of global buying.

After notching 49 fresh records in 10 months, gold’s rally has taken a breather—and the yellow metal is now threatening to close in a so-called correction.

A correction is defined as a decline of 10% or more from an asset’s recent peak. While it can be a typical market event, it also serves as a warning that the asset was overbought.

The price of gold traded as low as $3,937.10 today. If it settles below $3,923.46, it will fall into correction territory, having pulled back 10% from its peak of $4,359.40 hit on Oct. 20, according to Dow Jones Market Data. Prices refer to the most actively traded gold futures contract .

Created with Highcharts 9.0.1Gold priceSource: FactSetNote: continuous futures contractAs of Nov. 4

Created with Highcharts 9.0.1Correction territoryJuly 2025Nov.3,2003,4003,6003,8004,0004,2004,400$4,600

This week’s selloff comes after the Federal Reserve’s interest-rate meeting, where Chair Jerome Powell suggested there may not be another cut in December. Doubling down on that rhetoric was Fed Chicago President Austan Goolsbee, who said he is “not decided” on rates going into December as he’s “nervous about inflation” in an interview with Yahoo on Monday.

Leaving rates high could be wise, considering they could bring inflation down closer to the Fed’s 2% target. The worries of millions of Americans who have lost food stamp benefits during the government shutdown are further exacerbated by high grocery prices. At the same time, elevated rates can be a drag on the labor market, making it more expensive for companies to finance debt.

Higher-than-expected rates are also bad for gold bulls. It keeps other assets—think T-bills and high-yield savings accounts—lucrative for investors over gold.

That’s one reason investors should watch Japan. After sticking with negative interest rates for eight years, the country’s central bank has been moving toward raising rates. If the Bank of Japan ends its longstanding policy of ultralow interest rates, it can strengthen the yen and turn Japanese investors away from buying gold as a hedge against their currency’s devaluation.

This year so far, the Japan Physical Gold exchange-traded fund —the only fund in Japan backed by locally stored gold—has seen flows of ¥327 billion, or over $2 billion. It’s an amount not seen in a comparable period since 2010, according to the Dow Jones Market Data team. U.S.-listed gold ETFs have seen $41 billion in inflows so far, surpassing the 2020 record of $29 billion, according to State Street.

“Given Japan’s pivotal role in recent gold demand, this is arguably the biggest sword of Damocles hanging over the bull market,” wrote Louis-Vincent Gave, CEO, Gavekal Research, in a note last week. Higher Japanese interest rates and a stronger currency could see one of the market’s largest marginal buyers vanish, he added.

Remember, it isn’t just the U.S. economy or the Fed that can move prices. Gold is a global story.

Write to Karishma Vanjani at karishma.vanjani@dowjones.com.