TD Securities strategists explain that Gold has bounced after the Federal Open Market Committee (FOMC) left rates unchanged and Chair Warsh signaled tolerance for an inflation shock. However, they argue that shifting hike expectations from September to December does not materially change the outlook. Entrenched CTA (Commodity Trading Advisors) short positions require a move above $4,200/oz for minimal covering, with $4,300/oz needed for notable net longs.

CTA shorts face high covering threshold

"The FOMC held interest rates steady, but it was Fed Chair Warsh’s willingness to look through an inflation shock and steer away from data dependency that has given gold a lift higher."

"Hike pricing has since shifted away from September out to December. However, the market shifting hikes out a few months down the road does little to alter the prevailing outlook for the yellow metal."

"We continue to believe that market expectations for rate hikes will keep a lid on any material bullishness across precious metals."

"Pricing simulations highlight the potential for asymmetric upside with prices closer to $4,300/oz likely to see notable net long positions, however, we expect the gold upside will fall short of hitting those upside CTA scenario levels."

"CTAs still have a high bar to see any short covering with a move above the $4,200/oz region needed to catalyze only very minimal short covering."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)