In recent weeks, the top ten participants trading in Shanghai Futures Exchange (SHFE) Gold have been increasing their net length towards record levels, according to TDS senior commodity strategist Daniel Ghali. This trend is attributed to the Trump trade, with discretionary traders in Comex Gold also showing increased interest. However, Ghali warns that upside momentum may be slowing down in the near future.
There are emerging signs of a potential buyer’s strike in Asia, with SGE Gold trading at a slight discount and Chinese Gold ETFs showing signs of disinvestment. This suggests that retail appetite for Gold in the nation is decreasing at current price levels. Discretionary trader positioning in Gold is also higher than market expectations for Fed cuts over the next twelve months, indicating a possible bubble in the market.
Additionally, there is now downside asymmetry in CTA positioning risks, as algo trend followers are expected to liquidate some length in almost every scenario in the coming week. This means that a continued increase in Gold prices could be detrimental to CTA long positioning, as these funds typically follow vol-targeting risk management frameworks.
Overall, the recent surge in Gold positions by top traders may be reaching its peak, as signs of a potential slowdown in momentum and buyer resistance in Asia emerge. It will be important to monitor CTA positioning risks and watch for any potential liquidation of positions in the near future. Investors should exercise caution and stay informed about market developments to make informed decisions regarding Gold trading.
