Insights 
VT 
Spot Gold prices have experienced a notable decline, dropping 5.3% in a single day, with further decreases in early Asian trading. This decline is attributed to market conditions where profit-taking is evident after a period of overbuying.
Recent gains in spot Gold have been dramatic, with prices increasing by as much as $1,000 per ounce since late August. Concerns about the sustainability of this uptrend have emerged, alongside comments from President Trump expecting a favourable trade deal with China, further pressuring prices.
Gold ETF Buying
Gold’s recent price increases have been largely driven by substantial ETF purchases. September saw record levels of Gold ETF buying in dollar terms, with tonnage purchases being the largest since March 2022.
Other precious metals have also experienced price declines. Silver’s prices dropped more than 7%, while Platinum and Palladium saw decreases of 5.2% and 6.1%, respectively.
Given the sharp 5.3% drop in gold yesterday, implied volatility has surged. We see the Cboe Gold Volatility Index (GVZ) jumping over 35%, its highest level since the banking jitters of March 2024. This makes buying options expensive, but it presents an opportunity for those looking to sell premium.
The unwinding seems driven by the recent strength in economic data, which dampens the case for safe-haven assets. With the last Non-Farm Payrolls report earlier this month showing a surprising addition of 265,000 jobs, the narrative of an imminent slowdown is fading. Traders should consider buying short-dated put options to protect against, or profit from, further liquidation by the exchange-traded funds.
Major Gold ETF Outflows
We have seen data confirming over $5 billion in outflows from major gold ETFs in just the last two trading sessions, a record pace of selling. This pullback is reminiscent of the sharp correction in the second quarter of 2023, which was followed by a period of range-bound trading. Selling out-of-the-money call spreads could be a viable strategy to capitalize on the high volatility and a potentially capped upside in the near term.
The sell-off has been even more severe in other precious metals, with silver falling over 7%. This has pushed the gold-silver ratio to over 92, a level that has historically suggested silver is undervalued relative to gold. A pairs trade, using futures or options to go long silver and short gold, could be a way to play for a reversion to the mean.
