Gold positioning landscape still points to further downside – TDS

Does the sell-off in Gold still have room to run? Experts at TDS warned that the window for downside in prices was open, given for the first time in months, asymmetries in positioning risks skewed to the downside, TDS senior commodity strategist Daniel Ghali notes.

Significant liquidations reinforce the downside

“Macro trader positioning remains larger than warranted by rates markets' expectations for Federal Reserve (Fed) cuts alone, with signs the Trump trade had contributed to some froth. Signs of a buyer's strike in Asia also emerged, as highlighted by the significant deterioration in the SGE premium and by nascent signs of liquidations from Shanghai's top precious metals traders.”

“Since then, significant liquidations from Shanghai Futures Exchange (SHFE) Gold and Silver traders are now reinforcing the downside in price action, with more than 5t and 6.6m toz of notional sold over the last session alone. After all, if precious metal holdings were a hedge against Asian currency pressures, than the recent strength in Asian currencies is now playing in favor of continued downside.”

“We also now estimate that deteriorating price action could spark notable liquidations from CTA trend followers, with a break south of $2365/oz sparking a selling program totaling -5% of the algos' max size. And, our simulations of future prices also suggest that a downtape over the next week could large-scale selling activity totaling nearly -25% of the algos' max size, whereas a commensurate uptape would likely not catalyze any buying activity.”