Gold’s market dynamics are on the brink of a significant shift as Commodity Trading Advisors CTA gold liquidation might begin selling off positions in the coming week. This potential sell-off could intensify the ongoing downtrend, making it an ideal time for tactical short positions. While some market analysts suggest that Western money managers may continue increasing their positions, TDS commodity analyst Daniel Ghali provides an alternative perspective. He highlights that speculator positioning, although somewhat elevated, remains well below historical peaks based on CFTC data.
Potential CTA Selling Activity Expected Soon
TDS’s advanced positioning analytics provide a unique insight into the current market situation. According to their analysis, CTA gold liquidation and risk parity portfolios’ positioning is already close to its maximum, taking leverage into account. This contradicts the notion that there’s still room for speculators to increase their positions.
This discrepancy arises from the leverage environment, which has significantly constrained positioning. Despite CFTC data showing that speculator positions are not at their historical highs, TDS believes that the current levels are close to a local maximum.
Macro Fund Positioning at Its Peak
Macro funds are also in a similar situation, with their positioning effectively maxed out. This level of positioning aligns with expectations of more than 400 basis points of Federal Reserve rate cuts over the next year. Historically, such levels have often led to significant drawdowns, ranging from 7% to 10%.
With various market participants vulnerable, a continued downtrend in gold could trigger a wave of CTA selling activity. This is likely to reinforce the downward pressure on prices. TDS estimates that nearly half of the trend-followers’ positions could be liquidated if gold prices revisit the $2400/oz mark. The downside risks are becoming increasingly prominent in this scenario.
Conclusion
In summary, the gold market may experience a significant shift in the coming weeks as CTAs begin liquidating their positions, which could amplify the current downtrend. With macro fund positioning also at its peak, the potential for a larger sell-off looms. This could present an opportunity for those considering tactical short positions.
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