Gold markets have experienced relatively muted activity compared to the broader commodities sector, which has faced significant selling pressure, according to Daniel Ghali, Senior Commodity Strategist at TD Securities.
Ghali highlights that a potential test of the $2,400 per ounce level could trigger substantial selling by Commodity Trading Advisors (CTAs), especially if liquidity remains low. Currently, there are limited counterweights to downward pressure on gold, as macro fund positioning appears overly extended and may be exhausted.
In Shanghai, traders have started to offload their holdings from near-record levels, and physical market activity in Asia has slowed considerably. This liquidation likely stemmed from currency-depreciation hedges, which have diminished as Asian currencies have strengthened in recent weeks.
The potential for a deleveraging event could have major implications for the gold market. A rebound in yields might act as a catalyst for extensive mechanical selling by risk parity and volatility-control funds, CTAs, macro funds, and Shanghai traders.
