The recent sell-off in gold could have further to go, according to a warning from experts at TDS. Senior commodity strategist Daniel Ghali highlighted that, for the first time in months, positioning risks are skewed to the downside.
Downside Risks Intensified
Ghali pointed out that macro trader positioning appears excessive relative to expectations for Federal Reserve interest rate cuts. Additionally, the “Trump trade” has contributed to market froth. A noticeable buyer’s strike in Asia, evidenced by a significant decline in the Shanghai Gold Exchange (SGE) premium and emerging signs of liquidation from leading precious metals traders in Shanghai, further supports the bearish outlook.
The recent trend of substantial liquidations in the Shanghai Futures Exchange (SHFE) for gold and silver—exceeding 5 tonnes and 6.6 million ounces, respectively—has intensified the downward pressure on prices. Ghali noted that if precious metals were previously used as a hedge against Asian currency pressures, the recent strength in Asian currencies now supports further declines in gold prices.
Looking ahead, TDS estimates that deteriorating price trends could trigger significant selling by Commodity Trading Advisors (CTAs). A drop below $2,365 per ounce could activate a selling program representing up to 5% of the maximum size of CTA algorithms. If the decline continues, simulations suggest that it could lead to large-scale selling activity amounting to nearly 25% of the maximum size, while a corresponding rise in prices is unlikely to prompt significant buying activity.
