According to TDS senior commodity strategist Daniel Ghali, global markets are witnessing a transition away from normalization cuts towards a more aggressive stance by the Federal Reserve. This shift is a significant factor contributing to the high correlations observed across various markets in recent sessions.
Ghali points out that gold positioning is gradually turning tactically bearish. He notes, “The positioning set-up in Gold markets is becoming tactically bearish. Macro fund positioning is not only bloated. CTAs remain ‘max long’.” While immediate risks of large-scale liquidations don’t seem imminent based on their simulations, the proximity of market prices to the threshold for liquidations is increasing, especially considering the prolonged range-bound price action in recent months.
Highlighting the situation in Shanghai, Ghali mentions that positions there are inflated, but the driving force behind these positions has weakened due to the strengthening of Asian currencies, which has dampened the demand for currency-depreciation hedges. Physical markets in Asia have not shown significant signs of recovery, and sentiment remains robust despite substantial changes in the flow dynamics.
Ghali speculates that a reassessment of Fed expectations could serve as the trigger to unsettle some complacent long positions, potentially sparking a cascade of liquidations across various investor groups simultaneously. While the upcoming Jackson Hole meeting represents a possible catalyst, the non-farm data release in the following week will be crucial in shaping market sentiment and gold positioning dynamics.
