Gold prices slip as stronger dollar, Fed rate uncertainty weigh
Investing.com -- Gold’s recent dip was partly driven by selling from trend-following funds, according to Bank of America. The bank said commodity trading advisors (CTAs) “continued to unwind gold longs as the yellow metal declined for the second straight week.”
“Our more risk-averse models have already stopped out of their gold longs while some CTAs with higher risk tolerances may still be long as price trends continue to give bullish signals regardless of model speed,” BofA analysts led by Chintan Kotecha said in a note.
BofA’s CTA model showed that gold remained fully long across short-, medium-, and long-term horizons at the end of October, with trend strength readings still at 100%. However, the report indicated that several CTA models have already reached stop-out levels, historically associated with increased volatility from systematic selling.
BofA analysts added that “trend followers grew aluminum longs as futures posted a fifth consecutive week of gains,” suggesting some rotation within the commodity complex as positions shifted away from gold.
“These moves could leave aluminum as the most stretched commodity position among trend followers, depending on universe and risk budgets,” they said. “In other commodities, our model indicates that trend followers could buy soybean and soybean meal futures next week.”
In other markets, analysts also noted that trend followers remain heavily long global equities, with positions “stretched” across the U.S., Europe, and Japan after fresh all-time highs.
They said that “while stop-loss levels are still relatively distant, a sharp pullback could trigger significant unwinds,” with its models projecting CTAs could sell as much as $148 billion in equities in a down market scenario over the next week.
In fixed income, BofA highlighted that “stretched UST longs” came close to sell triggers following the latest Fed meeting, as higher yields and a firmer dollar pressured positions.
“The longs held on thanks to falling 10yr yields on Friday, but triggers remain close,” the team wrote, adding that CTAs are projected to continue buying the dollar versus all major currencies tracked.