The downturn in Gold prices underscored by sharp liquidations from macro funds lined up exceptionally well with historical patterns surrounding drawdowns associated with macro fund liquidations from extreme levels, averaging between 7-10% over the last decade, TDS’ Senior Commodity Strategist Daniel Ghali notes.
Price action forces CTAs back into ‘max long’ position size
“However, the strong price action since was less typical — featuring a concurrent decline in open interest in Comex Gold, despite with few directional money manager shorts after accounting for EFPs, continued divestment from ETFs in the West and in China, alongside a notable change in trading behavior from Shanghai traders over the last weeks.”
“We now expect imminent buying exhaustion. Safe-haven demand associated with Russia’s ballistic missile launch has hit the tapes supporting prices further than would otherwise be the case, but will likely have to reverse in the near-term. From a macro perspective, the Fed’s discounted path is no longer likely to lead to an ‘overly easy’ policy stance, suggesting that macro fund interest is unlikely to return towards extreme levels.”
“Price action has finally been sufficiently strong to force CTAs back into an effective ‘max long’ position size, suggesting that every single trend signal on our radar is already pointing long, which will in turn will cap subsequent algo buying activity. And, the TINA trade is still reversing in China, suggesting that Asian demand won’t save the day. The set-up for flows in Silver is notably superior.”
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