Gold is undergoing a correction driven by hawkish Federal Reserve expectations, but UBS believes the worst may already be over.

Gold has fallen about 5% since early September. In a research note published on October 12, UBS pointed out that stronger-than-expected economic data and persistent inflation pressures have reignited market expectations for further Fed rate hikes. The U.S. 10-year Treasury yield climbed from around 4.8% to above 5.3% during this period, the dollar index rose from about 100 to above 102, and gold prices fell from over $4,400/oz to about $4,140/oz.

This move mirrors the market repricing that followed Warsh's hawkish remarks at Jackson Hole in late August.

However, the bank believes the recent hawkish repricing has largely been reflected in gold prices. If the labor market continues to cool and Treasury yields retreat from highs, gold has significant room to rebound — in three similar historical episodes, gold rose approximately 5.9%, 11.4%, and 14.4% respectively. On the technical front, $3,990 to $4,030/oz is a key near-term support zone; if gold effectively breaks above $4,280 to $4,320/oz, it would confirm continued upside momentum.

Bearish factors largely digested, early buy signals emerging

The bank believes the recent hawkish repricing has largely been reflected in gold prices, and a more constructive entry point is taking shape.

After the correction, gold is currently stabilizing in the $4,140 to $4,200/oz range. Meanwhile, month-end labor market data has softened somewhat, and market expectations for an October Fed rate hike have also cooled. The bank stated:

This is not yet enough to confirm the formation of a durable bottom, but it supports our view that the balance of risks is becoming less bearish.

Gold's performance after three historical high-yield episodes: maximum rebound of 14.4%

The bank reviewed gold's performance following the past three instances of Treasury yields retreating from highs, and the data is quite compelling:

After the October 2023 peak retreated, gold rose about 5.9% within 69 calendar days

After the April 2024 peak retreated, gold rose about 11.4% within 144 calendar days

After the January 2025 peak retreated, gold rose about 14.4% within 81 calendar days

The triggers for the three rebounds varied: in late 2023, it was weakening economic data and a reversal of "higher for longer" expectations; in 2024, it was a cooling labor market and rising rate cut expectations; in early 2025, it was slowing growth expectations and rising policy uncertainty. But the common thread is: the market reassessed how restrictive monetary policy needed to be, Treasury yields retreated accordingly, and gold recovered. The report noted:

If the labor market continues to cool and oil prices stabilize, we expect the case for further rate hikes to weaken. A sustained easing of rate hike expectations and Treasury yields would provide stronger confirmation for the buying opportunity that is taking shape.

Technical picture: $4,000 is the key line of defense

From a technical perspective, UBS views $3,990 to $4,030/oz as the key near-term support zone.

If gold effectively breaks below $4,000/oz, it would imply a deeper correction

If gold sustains above $4,280 to $4,320/oz, it would represent a substantive improvement in technical momentum, confirming that the recent pullback remains a consolidation within the broader uptrend

Currently, gold remains below its short-term moving averages, with near-term momentum on the soft side, but buy signals are taking shape.