There is evidence that the last leg of the rally in Gold may have been a stop hunt, given the odd timing for an incursion into new all-time highs alongside evidence of new shorts being added by proprietary traders, family offices and macro funds while Gold ranged near the highs, TDS Senior Commodity Strategist Daniel Ghali notes.

Balance of risks is skewed significantly to the downside

“We still think the balance of risks is skewed significantly to the downside, with macro fund positioning at levels that have marked historical local tops including in Jul2016 (Brexit referendum), Sep2019 ("stealth QE") and during the depths of the pandemic in Mar2020. Shanghai traders are also holding onto record length, and CTAs are already max long.

“With nearly 120bps of cuts priced into year-end and fast return towards ‘neutral’ into the New Year without a recessionary consensus, this Goldilocks pricing could be easily challenged over the coming months.”

“Momentum in labour market weakness is driving convictions. While labour market weakness has historically led to further weakness, it remains to be seen whether that will be the case this time around since prior cases of labour market weakness have also been accompanied by layoffs, which have not yet been a feature of this cycle.”