For the first time in months, CTAs could start liquidating Gold in a downtape over the coming week, reinforcing the set-up for our tactical short. Alternative takes on the positioning set-up are of the view that Western money managers can continue to increase their length, underscored by a naked read of CFTC positioning data which suggests speculator positioning is only a touch frothy and well below its historical maximum, TDS commodity analyst Daniel Ghali notes.

Possible CTA selling activity to start over the coming week

“Our advanced positioning analytics, however, provide an edge on this read. Our point of contention: accounting for the leverage context suggests it is already effectively maxed out. CTAs' and risk parity portfolios' positioning is constrained by the leverage environment, which explains why we believe the CFTC data has already effectively reached a local maximum even though it remains below its historical max.”

“Macro fund positioning is also effectively maxed out. This positioning remains statistically consistent with more than 400bps of Fed cuts over the coming year, and is at levels that marked local highs in several previous cycles, followed by drawdowns in the 7%-10% range.”

“With several cohorts simultaneously vulnerable, a continued downtape in Gold can finally start to catalyze CTA selling activity over the coming week, reinforcing our view that the first cohort to blink can snowball subsequent selling activity. After all, we estimate that nearly half of trend followers positions will be liquidated in a revisit towards $2400/oz. Downside risks are now more potent.”