Global markets are pricing a shift away from normalization cuts towards aggressive Fed easing, which is part of the story on the extraordinarily high correlations across markets over the last sessions, TDS senior commodity strategist Daniel Ghali notes.

Gold positioning becomes tactically bearish

“The positioning set-up in Gold markets is becoming tactically bearish. Macro fund positioning is not only bloated. CTAs remain 'max long', and while our simulations of future prices don't point to imminent risks of large-scale liquidations, the threshold for liquidations to kick off is inching closer to market prices by the day, given that price action has remained largely range-bound over the last several months.”

“Shanghai positions remain bloated, but the underlying driver of these positions has diminished as strengthening Asian currencies grinds the demand for currency-depreciation hedges to a halt. Physical markets are nothing to write home about, with no signs of a notable recovery from Asia thus far. Sentiment appears exceptionally strong despite a substantial change in the set-up for flows.”

“A repricing in Fed expectations could be the catalyst to shake-out some complacent length, potentially catalyzing subsequent liquidations with several major cohorts simultaneously vulnerable. Jackson Hole is the next potential catalyst, but non-farm data on the following week will be key.”