(Kitco News) - Despite brief periods of consolidation, the gold market has been on an unprecedented and unstoppable uptrend, hitting consecutive record highs.
However, one Canadian bank has learned a valuable lesson: you don’t want to bet against the precious metal in an environment where global interest rates, led by the Federal Reserve, are heading lower.
On Friday, analysts at TD Securities announced that they were exiting their recently initiated tactical short position in gold. The bank had been warning investors that downside risks in gold were growing as bullish speculative positioning remained at extreme levels.
TD initiated the trade when December gold futures were trading at $2,533. The bank was expecting prices to fall back to $2,300 an ounce, as they anticipated the Federal Reserve would strike a more cautiously hawkish tone.
“Of course, this was an extremely out-of-consensus position, but while the flows hitting the tapes over the last sessions have been off our radar, it's clear that the Fed's low bar for pursuing notable easing in an economy that is in decent shape is attracting additional capital to the yellow metal,” the analysts said in their latest note.
TD exited the trade as December futures rose to $2,549 an ounce, resulting in a 4.4% loss on its tactical short position.
Looking ahead, the analysts note that extreme positioning can still be challenged, but the 'macro reckless' theme can just as easily be sustained.
Gold’s new push to record highs above $2,650 an ounce comes as markets continue to digest the Federal Reserve's shift in monetary policy. Last week, the central bank embarked on a new easing cycle with a 50-basis-point rate cut. The committee also expects the Fed Funds rate to fall to 3% by 2026.
There is a growing chorus of analysts who now expect gold prices to hit $3,000 an ounce by early next year.
