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Volatile gold price action is triggered by 'low volume and aggressive flow' before the U.S. election: TD Securities

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(Kitco News) Investors are very cautious and are choosing to stay on the sidelines with just days left until the U.S. election. This low volume mixed in with uncertainty is what's triggering the aggressive price action in gold, according to TD Securities.

"With a few days to election day, speculators aren't ready to stick their necks out. The event-risk is keeping money managers on the sidelines — a context which is seeing low volume and aggressive flow combine into sharp price action," TD Securities strategists wrote on Thursday.

Also, the pace of gold accumulation has stalled, which is visible through the flattening of the ETF holdings in October.

"With investment demand on pause and physical demand still lackluster, it didn't take much in terms of global macro forces to send prices lower," the strategists wrote.

On Thursday morning, gold tumbled to a daily low of $1,859.20 an ounce. Since then, December Comex gold futures managed to recover somewhat and were last trading at $1,871.70, down 0.40% on the day.

The uncertainty surrounding the U.S. election and the rise in coronavirus cases worldwide is keeping investors in the wait-and-see mode.

"Investor behavior is synonymous to a 'fight, flight or freezes' response — the uncertainty is keeping money on the sidelines, and few bids in the market," the strategists noted.

On top of that, the gold market is still seeing a lot of longs in the market due to gold's longer-term supportive drivers. If those pro-gold views change, the longs present a threat of another selloff wave, TD Securities added.

"The longer-term narrative has attracted a swarm of gold bugs, who are at risk of liquidating. While position sizes are in line with expectations, the number of traders long gold is elevated — which suggests a risk to their positions should the bullish gold narrative face adversity," the strategists wrote. "Further probing into who is long COMEX gold reveals that 'other reportables' — a category which largely includes proprietary trading houses, algorithmic traders, and local traders — are largely behind this speculative bet."

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