Gold Rally Nears Exhaustion, Setting Stage for Discretionary Capital

Gold prices may be due for a surprise as the algorithmic buying that fueled its recent rally is nearing exhaustion, while selling pressure in the physical market is likewise approaching a peak. According to Deutsche Bank's latest research, this dual depletion means gold could display resilience even if the Federal Reserve turns hawkish.

The report highlights that CTA (commodity trading adviser) funds were aggressively buying gold, with positioning climbing at one point to 33% of their historical maximum, but discretionary capital has barely changed throughout the late-summer move and has already retreated roughly 60% from its August peak. In other words, this gold rally has been almost entirely propped up by algorithmic trading.

Deutsche Bank states that selling exhaustion is imminent, with CTAs needing gold to break below $4,315 per ounce to trigger the next round of systematic selling. However, if prices move higher, CTAs could be forced to rebuild recently unwound long positions, which would further limit the market's available supply of sellable inventory.