Official Sector Demand Weakens
TD said institutional and retail participation in gold is already high. It also said the “debasement” trade is fading, with fewer expected US Federal Reserve cuts, no excess money supply growth, and lower concerns about Fed independence tied to a Supreme Court decision related to Lisa Cook’s trial. TD described recent price strength as driven by successive waves of buying from different capital pools. It said this raises the risk of a positioning washout. TD’s simulations indicated many scenarios could trigger CTA selling in the coming week. It said this would involve algorithms cutting long positions for the first time since February 2024.Positioning Washout Risk Rises
Gold’s upward trend appears increasingly fragile as the primary buyers are showing signs of exhaustion. Soaring energy costs, with crude oil having pushed back above $95 a barrel in early 2026, are straining the finances of key Asian importers. This significantly reduces the surplus cash their central banks have to continue buying gold at the aggressive pace we saw through 2024 and 2025. This slowdown in official demand is becoming more apparent, with recent reports indicating that central bank net purchases in the last quarter of 2025 were the lowest in over two years. Nations dealing with their own economic shocks are also less likely to be buyers and may even consider selling reserves to stabilize their currencies. These factors remove a key pillar of support that has been driving the market. From a positioning standpoint, the trade is dangerously crowded, leaving little room for new buyers to push prices higher. We’ve seen this before, where heavy institutional ownership precedes a sharp correction when the narrative shifts. Derivative traders must note that computer-driven trend-following funds (CTAs) are now at risk of liquidating the huge bullish positions they have held since the rally began in earnest back in February 2024. The trigger for this selling is the fading economic reason to own gold, as the Federal Reserve has signaled its pause on rate cuts will likely extend through 2026 due to persistent inflation. Without the prospect of cheaper money, a minor price dip could easily start a waterfall of automated selling from these CTA funds. This makes the risk of a rapid positioning washout to the downside particularly high in the weeks ahead. Create your live VT Markets account and start trading now.
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