The upcoming FOMC meeting is going to be quite contentious, but not for the Gold market, TDS commodity analyst Daniel Ghali notes.

The pain trade is to the downside

“Rates traders are divided on the outlook for Fed cuts for the next several meetings. One market where we do not see such division: Gold. Consensus is unanimously bullish, macro fund positions are at extremes and levered participants have scarcely held this bloated of a position.”

“A dry-powder analysis of Comex non-commercial positioning suggests that this froth is not associated with the breadth of traders long, but rather with the position size held by these traders. And given that the scale of macro fund positioning has reached extreme levels that have historically marked local tops, bloated position sizes argue for additional pain on a hawkish disappointment.”

“Shanghai traders have unwound some length in recent weeks from record highs, and Asian physical markets remain on a buyer's strike. Central banks are still buying, but the pace has significantly slowed and the latest data suggests it's now at its lowest levels of the last five years on a 6-month moving average basis. Hate it or love it, the pain trade is to the downside.”