The bullish momentum in gold remains unabated given the lack of bearish catalysts. We did get a pullback in the end of September/start of October as the repricing in the aggressive rate cuts expectations raised real yields and weighed on the market.
There’s lots of people shorting this monster at every new high trying to catch the top. I don’t blame them because positioning is indeed at record highs, but in the markets something expensive can get even more expensive if there’s no meaningful catalyst triggering a repricing.
Gold positioning (green line)
In the chart above, we can see the positioning is at record highs. We are at levels seen only in 2016 and 2020. In the bigger picture, gold remains in a bullish trend as real yields will likely continue to
fall amid the Fed’s easing cycle. The pullbacks will likely be triggered by a
repricing in rate cuts but unless the Fed’s reaction function changes, the
uptrend should remain intact.
One key event which could
trigger a strong selloff in gold is the upcoming US election. In fact, a Trump
victory will likely raise real yields on higher growth and less rate cuts
expectations. The last time Trump got elected, gold cratered by 16% (chart below).
Gold on Trump victory
In case Harris prevails, things will likely remain the same and gold will likely continue to push into new highs with the pullbacks coming from the repricing in rate cuts on strong US data.