Market News

(Bloomberg) -- Gold edged higher, paring some of the week’s steep losses in a market that flipped from widespread bullish sentiment to concerns that prices were overheating.

Spot gold rose 0.4% on Thursday, after seeing losses of about 6% over the previous two sessions. Investors continued to weigh the prospect that a US-China trade deal could relieve some of the geopolitical tensions that have bolstered demand for haven assets like gold in recent weeks.

The price slump coincided with a large outflow from gold-backed exchange-traded funds, which on Wednesday posted the biggest single-day decline in their holdings in five months, according to data compiled by Bloomberg.

“After an overstretched rally, gold is behaving like an elastic band that’s been pulled too far and is now snapping back hard,” said Hebe Chen, an analyst at brokerage Vantage Global Prime Pty Ltd. “Prices holding firm above the $4,000 mark point to a technical reset rather than a fundamental shift, with safe-haven demand and the ‘debasement trade’ still very much intact.”

The so-called debasement trade, in which investors avoid sovereign debt and currencies to protect themselves from runaway budget deficits, has been a driver of gold’s rally since mid-August. The metal is still up about 55% this year, with prices also supported in recent weeks by bets the Federal Reserve will make at least one quarter-point cut to interest rates by the end of the year.

Traders were piling into options to protect against the potential for further gyrations in gold prices. One-month implied volatility remains elevated, after surging to its highest since 2022 earlier this week.

Investors are watching for potential progress in talks between the US and China after a recent resurgence in trade tensions between the world’s two largest economies. US President Donald Trump on Tuesday predicted an upcoming meeting with Chinese President Xi Jinping would yield a “good deal” on trade — while also conceding that the talks may not happen.

Easing tensions earlier in the week “spurred a moderate risk-on movement in equities markets, reducing demand for safe havens,” Claudio Wewel, FX strategist at J. Safra Sarasin Sustainable Asset Management. “We believe that the fundamentals for a further rise in the gold price remain intact in the medium and longer term.”

Gold edged higher to $4,119.74 an ounce at 10:24 a.m. London time. The Bloomberg Dollar Spot Index advanced. Silver rose 1.8% after dropping 7.6% in the past two sessions. Palladium and platinum rose.

The London platinum market in particular is showing signs of significant tightness, building up a premium of over $70 an ounce over New York futures prices on Wednesday. Lease rates also spiked.

The market has been relatively tight for months, but the most recent squeeze comes after China removed a tax exemption for a state-owned giant that dominates platinum imports. The VAT rebate comes to an end on November 1., meaning platinum imported before that point can potentially be sold at a large premium, tax-free.