Gold open interest hits historic lows despite bullish macro – TDS

This is one of those moments where Gold markets are offering a gift, TDS' Senior Commodity Strategist Daniel Ghali notes.

Gold is 'overbought but underowned' in market perception

"Aggregate open interest in CME Gold is now approaching extreme lows (425k) that have historically marked lows in Gold prices—despite a compelling macro case for Gold. This underscores our view that Gold is perceived as a crowded trade, but is in fact under-owned. This is particularly surprising amid the ongoing megatheme-Gold's rally is associated with the USD partly losing its store of value function."

"Gold's rally isn't about demand, it's about trust. We expect aggregate futures open interest will imminently rise, as a function of market plumbing. CTAs will buy Gold in any scenario this coming week, with continued algo buying activity expected this session (+4% of max size). We expect this flow to persist and in fact to accelerate into next week's NFP report, potentially tallying up to a massive +30% of algos' max size."

"With macro funds largely flat in Gold post-liberation day, signs of selling exhaustion from ETF holders, incoming CTA flows, and historically strong forward returns from such low levels of aggregate open interest, prices are likely to be bolstered by positioning alone. Yet another about-face on trade could catalyze the next buying impulse by this summer."