The recent surge in gold prices can be attributed to a combination of factors including high deficits, slowing economic growth, persistent inflation fears, currency devaluation, and the global trend toward monetary easing. Despite these bullish drivers, TDS Senior Commodity Strategist Daniel Ghali cautions that traders may be overextending their bets on gold.
Ghali highlights that current gold market conditions suggest potential downside risks. He points out that macro fund positioning in gold is at unprecedented levels, comparable to scenarios with substantial Federal Reserve rate cuts of up to 370 basis points. Commodity Trading Advisors (CTAs) are heavily invested in gold, and positioning in Shanghai has reached record highs, with very few short positions visible in the market.
While the fundamental factors supporting gold remain robust, Ghali warns that these narratives often follow price movements rather than leading them. Consequently, the current extreme positioning could signal increased vulnerability.
The strategist notes that significant market events, such as the upcoming Jackson Hole Symposium and the next nonfarm payrolls report, could serve as critical triggers for potential shifts in positioning, possibly leading to a correction in gold prices.
