Gold: Downside risks are subsiding – TDS

Gold is melting higher, but downside risks are subsiding, TDS' Senior Commodity Strategist Daniel Ghali notes.

There is little scope to sell Gold

"Macro fund liquidations relating to risk constraints associated to the decline in equity markets have led them to hold their smallest position size since Gold prices traded nearly $1000/oz lower (Mar 2024). CTAs won't sell in size until we draw down more than $200/oz from current levels."  

"Risk parity funds are benefiting from the strong diversification benefit between stocks/bonds, limiting the risk of deleveraging. China is on the bid, as evidenced by the strength in the Shanghai premium. The latter buying impulse follows Chinese lifeco membership to the SGE last week, alongside a simultaneous rise in buying activity from Chinese ETFs."

"While some participants are concerned that prices are now at trend channel highs that have historically led to sell-offs, we argue that there is little scope to sell. Instead, expect that macro funds will be forced to FOMO back into Gold, keeping dips shallow and strong price action in play."