Trade thaw undermines ley Gold drivers – TDS

Developments on trade over the weekend were as close to an about-face as one could have hoped for, TDS' Senior Commodity Strategist Daniel Ghali notes.

Gold bears need $3050 break for CTA liquidation

"This is an attack on both fronts of our framework describing the ultimate drivers of buying activity in Gold markets— the East fears currency depreciation most, the West fears recession/stagflation most, and an about-face on trade significantly alleviates both these fears. In turn, Gold markets are likely to see less buying activity over the coming weeks, but we argue that prices will display a surprising resilience."

"After all, CTAs won't meaningfully sell their Gold exposure without a severe drawdown towards $3050/oz. Discretionary traders and macro funds are sitting net flat in Gold. A significant portion of the recent rise in ETF holdings is associated with a shift in institutional investors' strategic allocations, which is unlikely to change over the coming months."

"Unless macro funds build a notable net short position, this leaves Western retail ETF holders and Chinese ETF holders as the most vulnerable cohorts. However, central bank buying activity is likely to remain resilient nonetheless, offering a significant offset to any such selling activity. The worst case scenario for Gold hit the tapes less than 24h ago, and selling exhaustion already appears likely. Selling downsides is the most direct expression for this set-up."