TD Securities’ Senior Commodity Strategist Daniel Ghali highlights mounting risks to gold’s bull market, citing significant shocks faced by energy importers in Asia and Middle Eastern producers that are eroding official sector demand for gold [1]. Ghali notes that institutional and retail participation in gold has reached elevated levels, and TD Securities’ simulations indicate that Commodity Trading Advisors (CTAs) are likely to sell gold over the coming week, marking the first capitulation on long positions since February 2024 [1].
The report points to specific factors contributing to the downside risk, including Turkey’s consideration of tapping into its gold reserves to defend the Lira, which underscores the substantial headwinds facing official sector gold demand—the most significant since the Russia-Ukraine conflict [1]. Ghali further explains that widespread institutional investor participation now faces fewer exit strategies, as the debasement trade loses momentum due to fewer anticipated Federal Reserve rate cuts, lack of excess money supply growth, and reduced concerns about Fed independence following developments related to Lisa Cook's Supreme Court trial [1].
According to Ghali, the mechanics of gold’s bull market resemble a carry trade gone wrong, with a positioning washout acting as the balancing factor. The unprecedented retail and institutional demand observed in recent months suggests that the pain trade is likely to remain to the downside in the near term [1]. TD Securities’ simulations reinforce this outlook, predicting that most scenarios will result in CTA selling activity as algorithms capitulate on their long positions [1].
CONCLUSION
TD Securities warns that gold is at risk of a near-term downside, driven by CTA selling and diminished official sector demand. Elevated institutional and retail participation leaves fewer exit strategies, increasing the likelihood of a positioning washout. Market participants should brace for potential volatility as gold faces its most significant headwinds since the Russia-Ukraine conflict.