CTAs Slash Gold Longs as Fed Hike Fears Mount

Commodity Trading Advisors (CTAs) have become large-scale sellers of gold in recent times, liquidating nearly half of their net-long exposure. According to TD Securities' Ryan McKay and Bart Melek, this shift is largely due to the increased probability of a Federal Reserve hike and higher energy costs. The duo's simulations suggest that systematic funds could fully unwind or even go net short, but they stress that dollar-debasement narratives, central bank demand, and ETF inflows provide longer-term support.

The authors note that CTAs are now large sellers of gold, having liquidated nearly half of their current net-long position. This selling pressure is expected to be relatively modest, with the renewed dollar-debasement theme, elevated central bank buying, and renewed ETF accumulation offering a strong support base for longer-term discretionary flows.

In fact, McKay and Melek believe that any near-term weakness in gold should be viewed as a potential buying opportunity. Their simulations suggest that long positions could be completely unwound or even target a net short position under nearly all scenarios this week.