Gold: Fed risk caps CTA upside – TD Securities

TD Securities’ Ryan McKay and Bart Melek note that Gold remains under pressure as markets price a hawkish Federal Reserve (Fed) path and renewed energy strength. They highlight that CTA (Commodity Trading Advisors) short covering only begins above $4,222/oz, with more substantial net long positioning closer to $4,300/oz. However, they expect multiple dissents and ongoing hike pricing to limit Gold’s ability to reach these CTA trigger levels.

Fed pricing restrains gold CTA flows

"Precious metals have remained weak in the face of hawkish market pricing for the Fed, and renewed energy upside will continue to feed into this narrative."

"Gold markets are already well-priced for a hawkish Fed path, and while we are not expecting a hike today, the bar may be high to shift the underlying forward expectations for the yellow metal."

"CTAs need prices above $4,222/oz to catalyze only very minimal short covering, but beyond this level, pricing simulations highlight the potential for asymmetric upside with prices closer to $4,300/oz likely to see notable net long positions."

"However, we expect multiple dissents to a hold decision, and markets continuing to price for hikes in September and beyond, which would likely see any gold upside fall short of hitting those upside CTA scenario levels."

"War risk is back on, but we are not expecting any material CTA flows across the energy complex. Elsewhere, precious metals will be focused on the Fed, but the bar will be high to shift the underlying bearish forces in the gold market."

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