As strategists at TD Securities note, it is striking how traders short in gold have plunged considering that markets are pricing a hawkish Federal Reserve. However, this environment poses some risks for the yellow metal.

Where did all the shorts go? 

“Our dry-powder analysis highlights that the breadth of traders short in gold has shrunk towards its lowest levels on record. This is a striking change from just a few months ago, when sentiment in the precious metals complex was pervasively negative, with short positioning bloated at lower prices.” 

“Gold bugs appear to be ignoring a hawkish Fed and embracing a safe-haven asset for protection against the fog of war.”

“Strong physical demand is also likely both directly and indirectly associated with the war and its inflationary impact.”

“This set-up also leaves gold vulnerable to a de-escalation in the war or a change in the market's focus as the fear trade subsides, especially given that there are no shorts in sight.”