Gold Gains Meet Stress as Systematic Selling Looms

Key Moments

Strategist Flags Mounting Constraints on Gold’s Bull Market

TD Securities Senior Commodity Strategist Daniel Ghali contends that the structural drivers behind gold’s recent strength are increasingly under pressure. He argues that economic shocks confronting key energy-importing nations and Middle Eastern producers are undermining the ability and willingness of the official sector to continue accumulating the metal at prior levels.

Ghali highlights that both institutional and retail investors already hold substantial exposure to gold. Against this backdrop, internal TD Securities simulations point to the likelihood of selling from Commodity Trading Advisors in the near term, as systematic strategies begin to unwind long positions.

Official Sector Demand Hit by Energy and Regional Shocks

Ghali points to energy-importing economies in Asia as particularly vulnerable to higher energy costs, which he argues will compress external surpluses and slow the pace of central bank diversification into gold. At the same time, he notes that Middle Eastern economies are dealing with a severe economic shock that is expected to curb their gold purchases as well.

He also cites reports related to Turkey’s use of its gold reserves in support of its currency as a sign of the strain on official sector demand. According to Ghali, these developments collectively represent the most substantial headwinds for official gold buying since the onset of the Russia-Ukraine conflict.

Macro Backdrop and Limited Exit Routes for Investors

Ghali characterizes the current environment as one in which institutional investors have fewer clear exit strategies from gold-related trades. He references a backdrop in which the “debasement trade” is losing momentum amid expectations of fewer Federal Reserve rate cuts, the absence of excess money supply growth, and reduced concerns about Federal Reserve independence ahead of a Supreme Court decision regarding Lisa Cook’s trial.

In Ghali’s framing, the gold rally has been propelled by successive waves of capital entering the market, akin to a crowded carry trade that can unwind sharply. In such a construct, a broad positioning adjustment becomes the mechanism through which the market rebalances.

Positioning, Retail Flows, and CTA Selling Risk

The strategist underscores that institutional adoption of gold has been widespread, while retail interest has reached unprecedented levels in recent months. This combination, in his view, sets up a scenario where adverse price moves are more likely to be to the downside as crowded positioning is forced to adjust.

TD Securities’ internal modeling suggests that, across most plausible near-term paths, CTAs are likely to shift to selling over the coming week as algorithmic strategies capitulate on their long exposures. Ghali notes that this would mark the first such capitulation in gold CTA positioning since February 2024.

Summary of TD Securities’ Gold Market Assessment