Gold: Discretionary demand keeps bulls in control - TD Securities

TD Securities strategists Ryan McKay and Bart Melek highlight that strong discretionary and Asian buying is supporting Gold, even as CTA (Commodity Trading Advisors) positioning has plateaued. They argue CTAs would likely add length only on a move toward $4,600/oz, while softer United States (US) jobs data, subdued energy prices and expectations that Chair Warsh stays on hold could reinforce a stagflation narrative that benefits Gold.

CTA thresholds and macro tailwinds

"Precious metals holding on to gains. Flows have proven strong enough to maintain the upside in gold, but the bar remains high to see additional length from CTAs. Prices would need to make another material leg higher to the $4,600/oz region before CTAs buy more."

"This suggests macro discretionary and Asian appetite will need to continue their buying trends to keep the rally alive. Thus far, Asian appetite remains strong for the yellow metal with broad-based buying across cohorts on SHFE, and continued ETF inflows."

"Meanwhile, the much weaker-than-expected jobs report should see Fed pricing pressures ease, especially with energy prices remaining subdued alongside. These are the first signs of a material shift in the tides for precious metals, with discretionary appetite leading the recovery."

"Higher energy prices could still be a major hurdle, with US inflation data next week in focus. But if the market becomes convinced Chair Warsh won't hike anytime soon, any upside in energy prices could strengthen the stagflation narrative, adding further fuel to the gold bulls."