Gold fell more than 5% and silver tumbled nearly 7%. The selloff continued in early Asian trading before dip buyers kicked in. For gold, we saw a quick rebound approaching the $4,000 mark, while silver found demand near the $47.50 mark.

Why precious metals sold off yesterday—and whether this is the beginning of a broader correction—remains to be seen. But looking at yesterday’s action, the pullback was triggered by hopes of easing trade tensions between the US and China and a rebound in the US dollar.

Yet, tensions are far from guaranteed to ease—not this week and probably not during Trump’s entire mandate at the White House—and the US dollar’s rebound may be reversed by persistent, and very much alive, dovish Federal Reserve (Fed) expectations. Plus, the US government remains shut, and debt worries in the Western world have not eased.

On the contrary, French debt was just downgraded last Friday and the divided government there makes any budget deal look terribly complex. The UK just printed its second-biggest borrowing for April to September since records began in 1993 (the other was during the pandemic), while Japan just appointed Takaichi as its next PM—and she is willing to expand government spending.

So, what probably better explained yesterday’s precious metals selloff was mainly the fact that the metals are now trading in deeply overbought market conditions with heightened volatility. The gold volatility index has spiked this October to its highest level since March 2022. If history is any guide, gold retreated 20% following that volatility spike. And given the latest euphoria, crowded speculative long positions and overbought conditions, a further price pullback is possible—without, however, threatening gold’s role in long-term portfolios.

Gold has become the go-to asset for global investors—from retail to institutions and central banks—seeking protection from sovereign debt worries, trade and geopolitical jitters and inflation: factors that have become today’s reality. That won’t change overnight. Some, therefore, see the price pullback as an opportunity to strengthen long positions.

While gold and silver bulls were having a hard time yesterday, oil traders breathed a sigh of relief, with a more than 1% rebound yesterday followed by another 1.2% gain in Asia. But here, the opposite scenario is unfolding. Oil has fallen near oversold territory on murky global demand outlooks and ample OPEC supply, which are expected to lead to a supply surplus this year.

While a softer dollar—normally improving EM demand for energy—and prospects of Fed rate cuts haven’t boosted crude appetite since summer, cheaper oil could improve appetite for US 10-year Treasuries by taming inflationary pressures and justifying lower Fed rates. The US 10-year yield fell below the 4% mark yesterday, while the US dollar strengthened despite the ongoing US government shutdown—which, fundamentally, is not good news for US fiscal health. Go figure!

This morning, the US dollar is offered, as the EURUSD meets support near the 1.16 mark—which, by the way, is technically insignificant and wouldn’t necessarily hold bears back from further selling. The USDJPY is also retreating from above 152—again, technically insignificant apart from being a round number. With the French downgrade and the Japanese Takaichi trade mostly factored in, the next direction in major FX pairs will likely depend on the US dollar—and that will most likely hinge on the CPI figures due this Friday.

The good news is that earnings are coming in quite nicely, keeping stock market appetite alive, and there are signs investors are preparing for further Fed dovishness by closing short positions. Speaking of earnings, Coca-Cola delivered better-than-expected quarterly results, while GM raised its full-year profit target as it trims its struggling EV business and refocuses on its money-making gas-powered models in an environment where climate concerns are out of the window. GM also now expects the tariff impact to be half a billion dollars less than previously estimated.

Elsewhere, Zions Bancorp—which was part of last week’s bad-loan stress—topped profit estimates despite a $50 million loss tied to alleged fraud, easing bad-credit concerns among regional US banks. Netflix disappointed after the bell and fell 6.5% in after-hours trading, though the miss was due to a tax dispute—without which results would have been broadly in line. Tesla and IBM report today.

And speaking of short positions being closed into next week’s much-expected Fed cut, Beyond Meat—one of the most shorted stocks on the market—jumped around 127% on Friday and another 146% yesterday. Yesterday’s rally was also fueled by the announcement of its new US distribution deal with Walmart, but other heavily shorted names such as Krispy Kreme and 1-800-Flowers.com also gained more than 10% each. Affaire à suivre!