Official Sector Demand Weakens
It said the war in the Middle East has damaged Gulf economies and reduced surpluses in East Asia, affecting official-sector demand for now. It added that broad institutional participation has become more exposed, with fewer buyers during sell-offs. TD Securities said some market participants blame the fall on deleveraging, but its estimates show quant fund leverage has not changed since Day 2 of the war. It said this points to a weakening in market structure. It said liquidations have been large, but the market is still far from capitulation. It suggested waiting for CTA long capitulation before buying dips, and noted possible further unwinds of the “debasement trade”, including a Supreme Court decision linked to Lisa Cook’s trial. Commodity Trading Advisors (CTAs) will likely begin selling their gold holdings in most market scenarios. A significant price rally is needed over the next week to prevent these systematic funds from liquidating the majority of their long positions. This indicates that without strong buying, the market is positioned for a move lower.Potential Catalysts Ahead
Gold is currently behaving more like a risk asset than a traditional safe haven. We’ve seen its correlation to equity markets increase since the Mideast conflict of 2025, which damaged the economies of key commodity-producing nations. This has disrupted the usual U.S. dollar diversification flows that typically support gold during uncertain times. A major source of demand has also weakened for the time being. The economic hit from last year’s war has significantly reduced the trade surpluses of major central bank buyers in the Gulf and East Asia. Looking back, we saw official sector purchases fall sharply in late 2025 from the record pace set in 2023 and 2024, leaving institutional investors exposed without that key support. The scale of liquidations has been large, but we are a long way from a full capitulation event. For derivative traders, this means buying this dip is premature until we see a washout from the CTA crowd. Watch for a sharp increase in selling volume as a sign that the last of these trend-following longs have been forced out. Upcoming events could also trigger a further unwind of the fear-based “debasement trade.” The pending Supreme Court decision on the Lisa Cook matter is creating uncertainty about the future of monetary policy. This is a key catalyst that could prompt more selling if the outcome is seen as reducing long-term financial risks. Create your live VT Markets account and start trading now.
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