Gold market bullish narratives pose risks, analyst says

A period of high deficits, slowing growth, sticky inflation, currency devaluation and an impending discount cycle have already drawn capital into gold’s warm embrace, notes Daniel Ghali, TDS senior commodities strategist.

Bullish narratives in gold markets carry risks

“Our flow-based analysis now suggests downside risks are stronger. After all, macro fund positioning is now at its highest levels since the depth of the pandemic. It is more statistically consistent with 370 bp of Fed tapering over the next twelve months. CTAs are effectively “long maxes”. Chinese gold ETF outflows have resumed.”

“Shanghai traders’ positioning near records already reflects gold’s allure against a weaker domestic currency, stock market and property market. The narratives in the gold markets are unanimously bullish and have drawn a near-unanimous consensus for higher gold prices, but we see significant risks to the near-term positioning outlook.”

“Jackson Hole is the first potential catalyst, but the next payrolls release may be a more significant potential catalyst.”