The rally in gold prices raises a critical question: Does it still have room to grow? Daniel Ghali, a senior commodity strategist at TDS, provides insights into the current trends in the gold market.
1. Trading Trends in Shanghai Futures Exchange
Top participants in the Shanghai Futures Exchange (SHFE) gold market trends continue increasing their gold positions. Their net length has grown to record-high levels.
2. Impact of the Trump Trade
Recent gains in Comex Gold are partly due to discretionary traders, with the Trump trade playing a significant role. Commodity Trading Advisors (CTAs) have also driven gold price analysis increases. However, signs indicate that the upward momentum may soon slow down.
Emerging Buyer’s Strike in Asia
Nascent signs of a buyer’s strike are evident in Asia, with SGE Gold trading at a slight discount. Chinese Gold ETFs show disinvestment, indicating a reduced retail appetite at higher prices. Discretionary trader positions in gold price analysis appear larger than justified by market expectations for Fed cuts over the next twelve months. This trend suggests that the Asian market’s demand might not support further price hikes.
Risks in CTA Positioning
For the first time in months, downside risks in CTA positioning have emerged. Algo trend followers are expected to reduce their long positions soon. A continued price melt-up may negatively impact CTA long positions due to their vol-targeting risk management frameworks. Investors should be cautious as these adjustments could lead to increased volatility in the gold market trends.
Emerging Buyer’s Strike in Asia
Nascent signs of a buyer’s strike are evident in Asia, with SGE Gold trading at a slight discount. Chinese Gold ETFs show disinvestment, indicating a reduced retail appetite at higher prices. Discretionary trader positions in gold market appear larger than justified by market expectations for Fed cuts over the next twelve months.
Risks in CTA Positioning
For the first time in months, downside risks in CTA positioning have emerged. Algo trend followers are expected to reduce their long positions soon. A continued price melt-up may negatively impact CTA long positions due to their vol-targeting risk management frameworks.
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