Markets are now pricing in a coin flip on a 50bp or 25bp cut by the US Federal Reserve (Fed), but more than 175bps of cuts by March has already attracted massive positions into Gold. This explains the tepid reaction to the US Nonfarm Payrolls data, TDS Senior Commodity Strategist Daniel Ghali notes.

Gold remains near all-time highs

“We reiterate that macro fund positioning is at levels only matched by the Brexit referendum in 2016, the ‘stealth QE’ narrative in 2019, or the peak panic of the Covid-19 crisis in March 2020. Extreme positioning from this cohort has historically marked notable local highs in Gold prices and subsequent drawdowns that have ranged in the 7%-10% range.”

“While a notable beat on NFP may have helped to catalyze a repricing in expectations, it is not a necessary condition for Gold prices to fizzle out. Increasingly lackluster price action is also lowering the bar for CTAs to sell, with a big downtape already likely to catalyze selling activity from trend followers, despite the fact that Gold remains near all-time highs.”