Top traders on the Shanghai Futures Exchange (SHFE) continue to bolster their gold positions, pushing their net length towards record highs, according to Daniel Ghali, senior commodity strategist at TD Securities.
Recent gains in gold prices have been partially driven by discretionary traders in the Comex market, with indications that the so-called “Trump trade” has played a role in the recent uptick. Additionally, Commodity Trading Advisors (CTAs) have been influential in pushing prices higher over the past week. However, Ghali suggests that this upward momentum may soon face challenges.
Emerging signs of a potential buyer’s strike in Asia are evident, with SHFE gold now trading at a slight discount. Chinese gold ETFs have also shown signs of disinvestment, signaling a decline in retail demand at current price levels. Furthermore, discretionary trader positioning appears to be excessively bullish relative to market expectations for Federal Reserve rate cuts over the next year, indicating potential market overheating.
For the first time in months, CTA positioning now shows downside risk. Algorithmic trend-following funds are positioned to reduce their holdings in nearly all scenarios over the upcoming week. A continued surge in prices could negatively impact CTA long positions, as these funds typically adhere to volatility-targeting risk management strategies.
