Global markets are pricing a fast return to normalization, a cutting cycle steep enough that it has few historical analogies outside of a recession, TDS Senior Commodity Strategist Daniel Ghali notes. 

Markets price quick interest-rate cuts

“While there is an argument to be made that this is consistent with a period of disinflation from elevated levels, we see a low bar to challenge ‘this time is different’ pricing. At the same time, the set-up in Gold is such that a period of high deficits, slowing growth, sticky inflation fears, currency devaluation and an imminent cutting cycle has already attracted macro fund capital to the Yellow Metal's warm embrace.”

“Macro fund long positioning as a proportion of aggregate open interest is now beyond its 95th percentile, which has historically marked significant turning points for macro narratives as highlighted in our first chart of the day. This time around, the set-up also features 'max long' CTAs and Shanghai trader positioning at record highs.”

“Chinese ETF and broad commodity index outflows have already commenced, however. This begs the question: who will blink first?”