Downside Gold Risks Rise as Jackson Hole, Nonfarm Payrolls Await

Large deficits, slowing growth, fears of sticky inflation, currency devaluation and an impending global discounting cycle are all reasons to explain the current rise in gold prices. But traders could be going too far, notes Daniel Ghali, senior commodity strategist at TDS.

Downside risks have increased for gold

“If we were to argue that these narratives have already attracted significant inflows into the gold markets? Our Gold Macro Fund Positioning Indicator has hardly been higher than it is today. In fact, it is statistically consistent with 370 bps of Fed tapering.”

“Commodity Trading Advisors (CTAs) are ‘max long’ and Shanghai trader positioning has returned to record highs. Few visible shorts remained on the market. Positioning indicators are flashing red in the gold markets. And while the fundamental narratives driving Gold are bullish, the narratives ultimately follow the prices.”

“Downside risks have increased, and while positioning doesn’t tell us anything about timing, Jackson Hole and the next non-farm payrolls report appear to be consequential catalysts for a potential downside.”