Gold does not hedge against deleveraging or liquidity dynamics. There’s an acute risk of a widespread deleveraging event that could counterintuitively weigh on Gold prices. Markets suspect that recent selling activity has still been limited to the implications of unwinding carry trades, TDS senior commodity strategist Daniel Ghali notes.
Large-scale selling activity to kick off below $2390
“The recent price action following a considerable miss on payrolls data, alongside a meltdown in rates and into a weekend which hosted substantial geopolitical risks tied to the conflict in the Middle East are telling: not only is macro fund positioning bloated, but it is fully tapped out for the time being.”
“Commodity Trading Advisor (CTA) trend followers still hold substantial dry-powder to sell, with large-scale selling activity likely to kick off below $2390/oz in active futures. Shanghai traders still hold near-record length in Gold as a currency-depreciation hedge, but the driver of this build-up in positioning has significantly deteriorated with Asian currencies notably strengthening.”
“De-escalation in the Middle East could exacerbate these flows as safe-haven flows are simultaneously unwound. Overall, this suggests that the implications of a deleveraging event could be significant in Gold markets, which places our attention on a potential bounce in yields as a possible catalyst for large-scale mechanical selling activity from risk parity and vol-control funds, CTAs, macro funds and Shanghai traders.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD turns positive to retake 1.0500, as focus shifts to Fed Minutes
EUR/USD is trading close to 1.0500 in Tuesday's European trading, erasing lsses to trade in the green. The US Dollar reverses President-elect Trump’s tariff threats-led gains, allowing the pair to stage a modest recovery heading into the release of the Fed Minutes later in the day.
GBP/USD extends recovery toward 1.2600 ahead of BoE's Pill, Fed Minutes
GBP/USD extends the recovery toward 1.2600 in the European session on Tuesday, following a slump to the 1.2500 area in Asian trading. The pair finds footing amid a retreat in the US Dollar as markets look past Trump tariff threats, bracing for BoE Pill's speech and Fed Minutes.
Gold price defends $2,600 ahead of FOMC minutes; not out of the woods yet
Gold price retains its negative bias for the second straight day and trades just above a one-week low during the first half of the European session on Tuesday. The growing conviction that Donald Trump's expansionary policies will reignite inflation and limit the scope for the Fed to cut interest rates further triggers a fresh leg up in the US Treasury bond yields.
Trump shakes up markets again with “day one” tariff threats against CA, MX, CN
Pres-elect Trump reprised the ability from his first term to change the course of markets with a single post – this time from his Truth Social network; Threatening 25% tariffs "on Day One" against Mexico and Canada, and an additional 10% against China.
Eurozone PMI sounds the alarm about growth once more
The composite PMI dropped from 50 to 48.1, once more stressing growth concerns for the eurozone. Hard data has actually come in better than expected recently – so ahead of the December meeting, the ECB has to figure out whether this is the PMI crying wolf or whether it should take this signal seriously. We think it’s the latter.
Best Forex Brokers with Low Spreads
VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.