Renewed safe-haven demand has caught the Canadian bank on the wrong side of the gold market. TD Securities announced that it has stopped its short gold trade. However, the bank maintains its expectation that gold prices will decrease in the high real interest rate environment without continuous purchase flows.
TDS gold shorts explode
TD Securities has opened a short gold position since the end of January after the Federal Reserve announced it would raise interest rates ‘soon’. The bank shorted below $1,821 and expected prices to drop to $1,740.
cryptocoin.com As we reported, the safe-haven influx of yellow metal began on Friday after the US government advised US citizens to leave Ukraine over the weekend. On Monday, gold prices hit a new three-month high of $1,872.80 amid intensifying geopolitical tensions between the US and Russia. TDS commodity analysts said in their final notes:
Reports of the high risk of an imminent US invasion sent gold prices to our stops.
Although TDS has abandoned its bearish gold bet, the bank is not ready to abandon its view that prices will eventually fall. They point out that the upcoming rate hike by the Federal Reserve will limit the upward movement of gold in the short term.
According to TDS, gold is likely to succumb to high real interest rate environment
Right now, markets are giving a more than 50% chance that the Federal Reserve will raise interest rates by 50 basis points at its March monetary policy meeting. At the same time, markets see the possibility of six rate hikes before the end of the year. However, the US central bank is laying the groundwork to shrink its balance sheet before the end of the year. Analysts include the following assessment in the report:
Suppressed ETF activity, leveraged liquidations, little activity in London vault holdings data and no trend in official central bank holdings suggest a lack of sustained buying interest. And without a steady stream of purchases, gold prices are likely to succumb to a significantly higher real interest rate environment amid a hawkish Fed regime.
Leaving the latest safe-haven momentum behind, TDS analysts say they are starting a bearish margin of $1,750 / $1,600 for August gold in options markets.
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