Gold: CTA liquidation and dip-buying narrative – TD Securities

TD Securities’ Ryan McKay and Bart Melek highlight that CTAs (Commodity Trading Advisors) have turned large sellers of Gold, liquidating nearly half of their net-long exposure as markets price a Federal Reserve hike and higher energy costs. Their simulations suggest systematic funds could fully unwind or even go net short, but the authors stress that Dollar-debasement narratives, central bank demand and ETF inflows underpin longer-term support, making near-term weakness a potential buying opportunity.

CTAs slash longs as support builds

"CTAs turn large-scale sellers of gold as elevated Fed hike probabilities and higher energy prices weigh on the complex."

"CTAs are now large sellers of gold, liquidating nearly half of their current net-long position as the markets heavily price a Fed hike this week and as energy prices remain elevated."

"Pricing simulations further highlight the increasing risk that long positions could be completely unwound, or even target a net short position, under nearly all scenarios this week."

"With that said, we expect the systematic selling impact to be relatively modest while the renewed dollar-debasement theme, elevated central bank buying, and renewed ETF accumulation offer a strong support base for longer-term discretionary flows."

"Any near-term weakness in the yellow metal should be increasingly viewed as a potential buying opportunity."

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