TD Securities Scared: Gold May Dive into These Soles Soon!

After a strong $50 rise on Friday, is the gold price likely to break out? TD Securities says it’s too early for gold to move, citing strong ETF exits and bulging long positioning.

What’s behind the gold’s return?

December Comex gold futures were trading at $1,681.90, up 0.32% on the day after climbing from the $1,630 low recorded on Friday morning. Gold’s comeback comes after the latest US jobs report clarified some mixed statements from the Federal Reserve and signaled a possible easing in China’s zero-covid policy. Daniel Ghali, senior commodity strategist at TD Securities, comments:

Despite a hawkish Fed meeting, commodity prices are rallying from yearly lows amid speculation that China will ease its restrictive zero-covid policies. Precious metal prices are further bolstered as inflated money manager shorts are squeezed by the weakening broad dollar index and gold prices return to $1,675.

“The overall bearish trend for gold has not changed permanently”

TD Securities looks at the gold situation. However, he was not convinced that the overall bearish trend was about to change permanently. The analyst makes the following statement:

Our analysis shows that CTA trend follower positions largely account for changes in the CFTC’s money manager status information. And our model does not point to significant shorts from CTAs below $1,720. Given that the CTA is expected to have a small shorting area, these are the faults behind the ongoing squeeze. Continued ETF exits and still bulging prop-trader longs will likely limit the gold rally.

“It is too early for gold to rise now!”

The 2-year Treasury yield on Friday rose more than 50 basis points. As you can follow from , it has exceeded its 10-year efficiency with this breakthrough. After all, this is a key indicator of calm near 40-year highs. These developments also helped increase the gold price. Bart Melek, global commodity markets strategy leader at TD Securities, made the following statement:

The market thinks the economy is slowing down. This is reflected in the 2-year and 10-year yield curves. However, despite its stellar performance, gold maintains its long-term bearish trend. This is a short periodic rally type that should most likely sell here. It’s too early for gold to rise. The Fed is not finished now.

“Gold will drop below $1,600 in a few months”

TD Securities predicts the federal funds rate will peak at 5.5%, rather than previous claims below 5%. Therefore, he expects gold to drop below $1,600 in the next few months. Bart Melek explains these predictions as follows:

As the economy slows, you’ll start to see real rates rise. And central banks won’t be buying as much gold as they did this last quarter. The cost of transportation will be valuable.

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