The selling activity in Gold has been somewhat restrained, with top traders liquidating nearly 5 tons of notional Gold in the past week. This situation contrasts with the sentiment among Western investors. Our analysis shows that macro fund positioning is at its highest since the Brexit referendum in July 2016, with risk parity and volatility-targeting funds re-leveraging, which is contributing to a reaccumulation by Commodity Trading Advisors (CTAs), and prices are continuing to rise without significant resistance.
Western investors are increasingly worried about monetary inflation, interpreting the Fed's response as asymmetric, especially given that the US economy is performing reasonably well by many metrics. We anticipated a more gradual normalization of monetary policy that would challenge inflated positions, as aggressive global easing—similar to current market expectations—usually follows deteriorating economic or financial conditions.
Historically, the prospect of monetary inflation has been favorable for Gold prices. However, in real terms, prices are already approaching levels not seen since the 1980s, and macro fund positioning is quite extreme. Additionally, central bank buying activity has slowed down, and a resurgence of confidence in Asia could diminish a key driver of demand for Gold. In the short term, the potential for direct conflict between Iran and Israel is pushing more capital towards Gold.
