Senior Commodity Strategist Daniel Ghali of TD Securities (TDS) warns macro funds that there is no inherent reason for Federal Reserve rate cuts to automatically lead to higher gold prices.
Heightened Gap Risk
Ghali highlights that the dynamics of the gold market ultimately depend on the interplay between buyers and sellers. He points out that advanced positioning analytics indicate significant caution is warranted. Currently, macro fund positioning is at an all-time high, surpassing levels seen shortly after the Brexit referendum. Notably, there are almost no directional short positions remaining among money managers.
In the Asian market, traders in Shanghai continue to maintain their record long positions in gold. However, Chinese investors now face a broader array of investment options, leading to diminished fears of currency devaluation. Consequently, Asian physical traders have largely halted purchases. Additionally, central bank buying has dropped to its lowest level in five years, contributing to a consensus that is overwhelmingly bullish despite these warning signs.
Investors are encouraged to approach the gold market with caution given these developments, as the prevailing bullish sentiment may not translate into sustained price increases in the face of shifting market dynamics.
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