Are trend followers preparing to liquidate gold positions?

For the first time in months, CTAs could begin to liquidate Gold in a downtape next week, strengthening the setup for our tactical short. Alternative views on the positioning setup are that Western money managers can continue to increase their length, highlighted by a simple reading of CFTC positioning data, which suggests that speculators’ positioning is only slightly frothy and well below its all-time high, TDS freight. notes analyst Daniel Ghali.

Possible CTA selling activity to start next week

“However, our advanced positioning analytics provide an advantage in this reading. Our point of contention: consideration of the leverage context suggests that it is already effectively maximum. The positioning of CTAs and risk-parity portfolios is constrained by the leverage environment, which explains why we believe the CFTC data has already effectively hit a local high, even if it remains below its all-time high.”

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

“With multiple cohorts vulnerable at once, a continued downtape in Gold may finally begin to catalyze CTA selling activity in the week ahead, reinforcing our view that the first cohort to blink can snowball subsequent selling activity. After all, we estimate that almost half of trend followers’ positions will be liquidated in a revision to $2400/oz. The downside risks are now stronger.”