Gold (XAUUSD) Correction Holds Support Amid Growing Liquidity Stress

Gold (XAUUSD) prices declined this week as traders booked profits following the recent record-breaking rally. The shadows on the 4-hour and daily candles at the key psychological level suggest strong underlying demand and continued bullish pressure.

Meanwhile, institutions and private investors have been increasing their gold holdings amid concerns about inflation and monetary instability. This pullback may signal a short-term bottom and could pave the way for another move toward new record highs.

Gold’s Current Pullback in Historical Perspective

Historical context shows that gold is showing a price pattern similar to the surge seen in the late 1970s. During that period, it reached a record high above $800 before undergoing a sharp correction.

The recent pullback in spot gold from $4,380 to $4,000 represents a decline of less than 10%. This closely resembles the 1979 correction, when prices dropped from $444.50 to $365 in October. A strong rally followed that decline, taking gold to over $800 by January 1980. This was an increase of more than 100% in just three months.

Gold also experienced a similar correction in October 2008, although it was deeper than the one in 1979. That decline also proved temporary, as prices rebounded sharply following the Federal Reserve’s introduction of quantitative easing. Gold eventually rose to $1,800 within two years.

Given current economic conditions, the recent gold market correction may be temporary. It could also set the stage for another upward move heading into 2026.

Liquidity Stress and Gold Market Implications

The secured overnight financing rate (SOFR) continues to reflect stress in short-term funding markets, as shown in the chart below.

Following recent spikes, the Federal Reserve injected liquidity through overnight repurchase agreements, as evidenced by a sharp increase in repo operations in July 2025 and several additional surges in September and October. The chart below shows another $3 billion injected into the banking system through these operations.

These interventions underscore continued stress in financial markets. Bitcoin (BTC) is consolidating above a key level and often serves as a proxy for liquidity conditions. A breakdown below this level could signal renewed tightening across asset classes. On the other hand, if gold continues to hold above $4,000, it may attract renewed buying interest and potentially lead to new highs.

Two key factors continue to support long-term demand for gold. First, global trade and reserve holdings are gradually diversifying, with many countries exploring settlement systems that incorporate commodities such as gold.

Second, ongoing concerns about inflation and rising government debt levels worldwide are prompting investors to seek stable, tangible assets. These structural trends indicate that gold is likely to remain a core component of diversified investment strategies over the long term.

Gold Technical Analysis – Ascending Channel Pattern

The weekly chart for spot gold shows the price breaking above key resistance at $3,800 and reaching the extension zone near $4,400. After hitting this level, gold corrected back toward the red-dotted trend line and has since consolidated between these levels. Strong support remains at the $4,000 and $3,850 levels.

Silver Technical Analysis – Ascending Channel Pattern

The weekly chart for spot silver (XAG) shows it recently tested strong resistance around the $52 level. This resistance is highlighted by the red-dotted trend line in the chart below. The price briefly extended above this resistance, reaching a high near $54.50. Then, the price pulled back and formed a shadow on the weekly candle, indicating potential weakness.

Silver has now reached first support at the red trend line around the $48 zone. As long as silver holds above the $40 area, the next significant move in the market is likely to be to the upside. A break above $55 in spot silver will take the prices to $60.