TD Securities shorting gold at $1,800 as market fails to catch a bid as real yields drop
Friday, commodity analysts at TD Securities said in a note to clients that they have initiated a tactical short position in gold and are looking for prices to fall to $1,730 an ounce.
"Gold prices are struggling to firm despite crumbling real rates. The yellow metal's persistent weakness against real yields points to a vulnerable microstructure, while at the same time, gold's inability to rally despite the risk-off trading environment highlights that speculative flows remain particularly weak," said Daniel Ghali, commodity strategist at TD Securities and the author of the note.
"Global macro growth angst catalyzed a repricing in expectations for Fed hikes, but gold still wasn't able to catch a bid, reinforcing the potential for a deeper pullback," Ghali added.
The bearish bet comes after the 10-year yield fell to its lowest point since early February, briefly dropping to 1.12% at the start of the week. Meanwhile, real interest rates dropped to -1.1%, a level not seen since the start of the year.
Despite lower bond yields, gold prices have struggled to find any bullish momentum. Friday, prices briefly dropped to a one-month low below $1,800 an ounce. Some analysts have noted that gold is being held back by resilient strength in the U.S. dollar.
TD Securities said that near-term the pain threshold for gold investors is around $1,780. A push below this could trigger a wave of selling, particularly from investors in gold-backed ETFs.
TD is looking to hold the trade for the next month with a stop loss at $1,850 an ounce.