FXStreet reports that Daniel Ghali, a commodity strategist at TD Securities, advises how to trade gold in the current risk-on regime. He notes that a positioning squeeze is on the cards as the yellow metal becomes a crowded trade.

“We have argued that gold is in the midst of a regime change, shifting from a safe-haven into an inflation-hedge asset. As a result, gold prices have increasingly been correlated to risk assets. This is driven by common drivers impacting both risk assets and gold – namely, the surge in liquidity that has driven both risk assets and gold higher, as capital shelters itself from negative real yields in risk and real assets.” 

“A decomposition of the themes driving trading decisions reveals that macro themes, such as inflation expectations, have driven an increase in length, particularly as prices broke through resistance levels. Importantly, risk-on has had a limited impact on positioning, and has been positively correlated with length on average over the last month. Waning momentum has been the largest hurdle for an increase in length.”

“Insofar as this regime is driven by real-rate suppression, money managers need not be concerned about trading gold in a risk-on environment. However, while we see no extremes in positioning, gold is becoming a crowded trade, raising the risk of a positioning squeeze should these themes be adversely affected.”

The U.S. Energy Information Administration (EIA) revealed on Wednesday that crude inventories fell by 7.493 million barrels in the week ended July 10. Economists had forecast a decrease of 2.275 million barrels.

At the same time, gasoline stocks dropped by 3.147 million barrels, while analysts had expected a decline of 0.643 million barrels. Distillate stocks decreased by 0.453 million barrels, while analysts had forecast a build of 1.485 million barrels.

Meanwhile, oil production in the U.S. remained unchanged at 11.000 million barrels a day.

U.S. crude oil imports averaged 5.6 million barrels per day last week, decreased by 1.8 million barrels per day from the previous week.