Gold: Conflict-driven risks challenge crowded trade – TD Securities

TD Securities’ Senior Commodity Strategist Daniel Ghali warns that Gold faces a challenging backdrop as Middle Eastern conflict strains official sector demand and Commodity Trading Advisors (CTA) keep selling. He highlights that Middle Eastern and other energy-importing nations may curb bullion purchases. Despite this, Gold’s long-term bull trend remains technically intact.

Official demand risks and CTA selling

"CTAs will continue to sell in the imminent term, in most scenarios for prices, albeit modest in scale. Zooming out: we quickly identified risks that Middle Eastern nations, who have played a notable role in unreported official sector gold purchases, would wind their bullion purchases down to zero amid a surging economic toll from the conflict."

"This created vulnerabilities towards a breakdown in gold prices. As energy prices continue to surge, this risk is now broadening globally towards energy importer nations. The problem: without support from the official sector, widespread participation in gold from institutional investors is increasingly vulnerable."

"Shrinking official sector demand removes an out for institutional investors participating in a crowded trade. Unprecedented retail participation already fueled extremes in prices over the last months."

"There will come a time to buy, but gold's bull-market era trendline still sits roughly $1000/oz lower than current prices, pointing to substantial scope for more pain without ever technically endangering the bull market."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)