As macro funds unwound their Gold positions, we witnessed a sharp downturn in prices. This aligns with past trends, where such extreme liquidations have typically led to 7-10% price declines over the last decade,” explained Daniel Ghali, Senior Commodity Strategist at TDS.
Gold’s Meteoric Rise Faces Gravity’s Pull
Price action has compelled CTAs to revert to a maximum long position size. While the recent strong price action is atypical, it has been accompanied by a decrease in Comex Gold open interest, despite limited directional money manager short positions, continued ETF divestment in both Western and Chinese markets, and a significant shift in trading behavior among Shanghai traders.
Source: create.vista.com
The firm anticipates imminent buying exhaustion. Although safe-haven demand spurred by Russia’s ballistic missile launch has provided additional support to prices, this effect is expected to diminish in the near future. From a macroeconomic perspective, the Fed’s discounted policy path is unlikely to result in an excessively accommodative stance, reducing the likelihood of a resurgence in macro fund interest to extreme levels.
The robust price action has forced CTAs to adopt a maximum long position, indicating that all trend signals are currently pointing upwards. This, in turn, is expected to cap subsequent algorithmic buying activity. Furthermore, the reversal of the TINA trade in China suggests that Asian demand will not be a significant price driver. The firm believes that the setup for flows in Silver appears to be more favorable.
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