Downside Pressure Looms for Gold
TDS Senior Commodity Strategist Daniel Ghali has warned that the gold market is facing significant downside risks due to a potential reversal of the Trump trade.
“Currently, our measure of discretionary trader positioning in gold is overly inflated compared to expectations in the rates market,” Ghali explained. “This inflation is partly due to the Trump trade, which has pushed gold prices beyond levels that align with anticipated Federal Reserve rate cuts.”
Ghali noted that positioning risks in gold are now heavily skewed towards the downside. Commodity Trading Advisors (CTAs) are holding “max long” positions that could be vulnerable if gold prices drop below $2,380 per ounce. Even a minor reversal of the Trump trade could trigger further selling.
Moreover, Ghali highlighted a buyer’s strike in Asia, as evidenced by the sharp decline in the Shanghai Gold Exchange (SGE) premium and significant long liquidations on the Shanghai Futures Exchange (SHFE). This could create a liquidity vacuum, reducing the number of buyers available to counteract potential liquidations driven by a Trump trade reversal and additional CTA selling.
“The window for downside pressure in the gold market is open,” Ghali concluded, emphasizing the potential for a significant drop in gold prices amidst these market conditions.
