Positioning risks are asymmetrically skewed to the downside for the first time in months, TDS Senior Commodity Strategist Daniel Ghali notes
Positioning risks seem skewed to the downside
“Commodity Trading Advisors (CTAs) are now likely to sell over the next several sessions, even in a big uptape. In fact, rising asset vol may be most likely to contribute to pain for trend following algos, whereas the scope for additional CTA buying activity is marginal at best. This set-up suggests a major driver of the recent gains towards new all-time highs is now working in favor of downside in price action.”
“This time around, we also see signs that discretionary trader positioning is bloated relative to rates market expectations, with our analytics suggesting that the Trump trade may have attracted new length. While Shanghai traders were also adding to their Shanghai Futures Exchange (SHFE) Gold length over the last week, our tracking of the top participants' positions reveals substantial liquidations overnight.”
“Further, Asia is on a buyer’s strike in physical markets, as highlighted by the plummeting SGE premium. Our analysis of flows suggests the window for downside is open in the Yellow Metal, and a pause in Gold’s bull market could be in store.”
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