The Global Market Shift Towards Aggressive Fed Easing: What It Means for Gold Investors
In recent sessions, global markets have been showing a shift away from normalization cuts towards aggressive Fed easing. This has led to extraordinarily high correlations across markets, as noted by TDS senior commodity strategist Daniel Ghali.
One area of concern is the positioning in the Gold markets, which is becoming tactically bearish. Macro fund positioning is bloated, CTAs remain ‘max long’, and while there are no imminent risks of large-scale liquidations, the threshold for liquidations to kick off is getting closer to market prices. The price action has been range-bound for several months, leading to potential risks.
Shanghai positions are also bloated, but the demand for currency-depreciation hedges is diminishing as Asian currencies strengthen. Physical markets in Asia are not showing signs of notable recovery yet. Despite this, sentiment remains strong, but there has been a substantial change in the set-up for flows.
A repricing in Fed expectations could be the catalyst for shaking out some complacent length in the market, potentially leading to subsequent liquidations. Jackson Hole is the next potential catalyst, with non-farm data in the following week being key.
In conclusion, investors in Gold and other markets should be cautious of the current market conditions and be prepared for potential shifts in the coming weeks. Keeping an eye on Fed actions and key economic data releases will be crucial for making informed investment decisions.