Gold emerges as a bearish reversal emerges, analyst says

Global markets are predicting a quick return to normal, a cutting cycle steep enough to have few historical analogs outside of a recession, notes Daniel Ghali, TDS senior commodities strategist.

Markets price out quick interest rate cuts

“While there is an argument to be made that this is consistent with a period of disinflation from high levels, we see a low bar to challenge ‘this time is different’ prices. At the same time, the set-up in gold is such that a period of large deficits, slowing growth, fears of sticky inflation, currency devaluation and an impending discount cycle has already drawn macro fund capital into the warm embrace of the yellow metal.”

“The long position of macro funds as a proportion of aggregate open interest is now above the 95th percentile, which has historically marked significant turning points for macro narratives, as highlighted in our first chart of the day. This time, the setup also includes the ‘max long’ CTA and the positioning of Shanghai traders at record highs.”

“The exits of Chinese ETFs and commodity indices have already begun. This begs the question: who will blink first?”