In the latest market analysis, it has been suggested that CTAs (Commodity Trading Advisors) could start liquidating gold in a downtrend over the upcoming week. This reinforces the set-up for a tactical short. While some believe that Western money managers may continue to increase their positions in gold, others argue that CFTC positioning data shows speculator positioning is only slightly frothy and well below historical maximums. TDS commodity analyst Daniel Ghali points out that advanced positioning analytics offer a different perspective, suggesting that leverage constraints may have already maxed out CTAs’ and risk parity portfolios’ positions, even if they appear below historical highs.
In addition to CTAs, macro fund positioning is said to be maxed out as well. This positioning is consistent with expectations of significant interest rate cuts by the Federal Reserve, with levels that have historically led to market drawdowns in the 7%-10% range. With multiple market cohorts potentially vulnerable, a sustained downtrend in gold could trigger CTA selling activity in the coming week. This could lead to a cascade effect, with trend followers liquidating nearly half of their positions if gold revisits $2400/oz. The downside risks for gold are now seen as more substantial.
Overall, the analysis suggests that the market may be at a turning point for gold, with the potential for increased selling pressure from CTAs and other funds. While some argue that Western money managers may continue to increase their positions in gold, others believe that leverage constraints have already maxed out current positions. With macro fund positioning also reaching high levels, there is a sense of vulnerability in the market that could lead to significant selling activity in the near future. As a result, investors are advised to monitor the situation closely and consider the potential impact on gold prices.
In conclusion, the upcoming week could see increased selling activity in gold as CTAs and other funds potentially liquidate their positions. Leverage constraints and high positioning levels among macro funds suggest that the market may be reaching a tipping point for gold prices. With multiple cohorts vulnerable to a downturn in the gold market, there is a possibility of a snowball effect as selling activity accelerates. Investors should stay informed and prepared for potential downside risks in the gold market in the coming days.
