Positioning cues are flashing red in Gold markets on several fronts, such that fund managers are now only likely to be vindicated in an imminent recession or with a broadening composition of Gold investors, TD Securities Senior Commodity Strategist Daniel Ghali notes.

Jackson Hole and the next payrolls report seem consequential

“Gold prices are now retracing from new all-time highs, following the significant technical break north of $2500/oz in spot Gold which participants have tied to significant macro fund buying, digital barriers, ETF options expiry and reports the PBoC issued new Gold import licenses. In reality, the mosaic of information suggests the breakout was more likely associated with options flows, given that reports of Chinese import quotas appear largely inconsequential for the time being with domestic Gold prices still trading at a discount.”

“We continue to see signs of buying exhaustion on several fronts, barring an imminent recession. Shanghai traders' positions remain near record highs, despite demand for a currency-depreciation hedge grinding to a halt. CTAs remain 'max long'. Most importantly, macro fund positioning is now at its highest levels since April 2020 and is in fact now more statistically consistent with 370bps of Fed cuts over the next twelve months.”

“This is out of line with more modest pricing for cuts across global macro markets, and screams of a dislocation in positioning that may only be vindicated by an imminent recession, unless 'this time is different'. Wednesday's annual benchmark revision estimate for payrolls could add fuel to recession fears, given payrolls data does appear to be overstating job gains, but Jackson Hole and the next payrolls report appear most consequential.”