TD Securities said money managers increased long exposure to gold as modest inflation, softer US employment data and expectations of no Federal Reserve rate hikes this year weighed on the US dollar. Positioning also reflected a broader tilt towards gold and oil on the view that policy may stay on hold while instability in the Middle East persists, helping prices move into a higher trading range and keeping short-end rates subdued.
Some money managers simultaneously added to short positions as a hedge against a potential drop in gold. The protective trades were linked to the risk that oil prices and interest rates could still rise, given geopolitical tensions centred on the Persian Gulf. The article was produced with the assistance of an artificial intelligence tool and reviewed by an editor.
Favorable Macro Backdrop Driving Gold Positions
We believe derivative traders should aggressively expand their long gold positions over the coming weeks as macroeconomic indicators tilt in favor of the precious metal. With recent U.S. jobs data showing a cooling labor market and inflation stabilizing, the Federal Reserve is highly unlikely to raise interest rates. This soft-landing narrative has weakened the U.S. Dollar, paving the way for gold to comfortably test new highs.
Looking at historical data, gold has maintained an impressive upward trajectory, building on the momentum that saw prices average over $2,400 per ounce recently. Position statistics show that speculative net-long contracts have surged by over 15% in recent weeks, signaling strong institutional backing. We expect this bullish trend to continue as long as bond yields remain capped.
Risk Management in a Geopolitical Environment
Even with this bullish outlook, we urge traders to hedge their positions against sudden geopolitical shocks in the Persian Gulf. A sudden escalation could send crude oil prices soaring, which would revive inflation worries and pressure the Fed to hike rates. We recommend balancing your long gold futures with protective put options or long crude oil calls to safeguard your capital.
