Is there any chance for gold price to break out after a strong $50 rise on Friday? TD Securities says it’s too early for gold to move, citing strong ETF exits and bulging long positioning.
What’s behind the gold’s return?
December Comex gold futures were trading at $1,681.90, up 0.32% on the day after climbing from Friday morning’s low of $1,630. Gold’s return comes after the latest US jobs report clarified some mixed messages from the Federal Reserve and signaled a possible easing in China’s zero-covid policy. Daniel Ghali, senior commodity strategist at TD Securities, comments:
Despite a hawkish Fed meeting, commodity prices are rallying from yearly lows amid speculation that China will ease its restrictive zero-covid policies. Precious metal prices are further supported as inflated money manager shorts are squeezed by the weakening broad dollar index and gold prices return to $1,675.
“The overall bearish trend for gold has not changed permanently”
TD Securities is looking at its gold position. However, he is not convinced that the overall bearish trend is about to change permanently. The analyst makes the following statement:
Our analysis shows that CTA trend follower positions largely account for changes in the CFTC’s money manager position data. And our model doesn’t point to significant shorts from CTAs below $1,720. Given that the CTA is expected to have a small shorting, they are the culprits behind the continued squeeze. Continued ETF exits and still bulging prop-trader longs will likely limit the gold rally.
“It is too early for gold to rise!”
The 2-year Treasury yield on Friday rose more than 50 basis points. cryptocoin.comAs you can follow, with this move, it exceeded the 10-year yield. All in all, it’s a key recession indicator near 40-year highs. These developments also helped increase the gold price. Bart Melek, head of global commodity markets strategy at TD Securities, said:
The market thinks the economy is slowing down. This is reflected in the 2-year and 10-year yield curves. However, despite its stellar performance, gold remains in a long-term bearish trend. This is a short-lived rally type that should most likely be sold here. It’s too early for gold to rise. The Fed is not finished yet.
“Gold will drop below $1,600 in a few months”
TD Securities predicts the federal funds rate will peak at 5.5%, rather than previous estimates below 5%. Therefore, he expects gold to drop below $1,600 in the next few months. Bart Melek explains these predictions as follows:
As the economy slows, you’ll start to see real rates rise. And central banks won’t be buying as much gold as they did this last quarter. The cost of transportation will be expensive.
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