Gold bounces back after sharp losses amid concerns about an outsized rise

Gold rose on Thursday, recovering some of its sharp losses this week, in a market that has seen a shift from bullish enthusiasm to concerns about an excessive rise. Spot gold rose 0.3% after falling about 6% in the previous two sessions. Investors continued to weigh the possibility that a trade deal between the United States and China could ease some of the geopolitical tensions that have boosted demand for safe-haven assets like gold in recent weeks. “After an excessive rally, gold is behaving like a rubber band that has been stretched too much and is now bouncing back strongly,” said Hebei Chen, an analyst at brokerage Vantage Global Prime. She added: “The consolidation of prices above the $4,000 level indicates a technical re-correction rather than a fundamental shift, with demand for safe havens and the value trading strategy remaining strong.” The year’s gains are driven by debt and inflation fears. The “top-down trade” strategy, which occurs when investors avoid sovereign debt and currencies to protect themselves from widening fiscal deficits, has been one of the main drivers of gold’s rally since mid-August. The metal is still up about 55% since the start of the year, also supported by bets that the US Federal Reserve will cut interest rates by at least a quarter of a percentage point before the end of the year. Traders flocked to hedging options against possible additional fluctuations in gold prices, while implied volatility remained at a one-month high after reaching its highest levels since 2022 this week. Investments that come from gold-backed funds. The drop in prices this week coincided with gold-backed exchange-traded funds posting the biggest daily drop in their holdings in five months on Wednesday, according to data compiled by Bloomberg. Gold rose to $4,107.92 an ounce in spot deals at 4:24 p.m. in New York. The Bloomberg Dollar Spot Index was almost flat, while silver rose 0.6%, and palladium and platinum both fell.