Buy Season For Gold Has Just Begun

Key Concepts

CTA (Commodity Trading Advisor) Liquidations: Selling pressure driven by algorithmic trading strategies that follow momentum.
Buy Season: A historically supportive period for commodities, typically from late October/November through December, characterized by fund reallocations and new fiscal year deployments.
Sell Season: A period of tax-loss selling, usually from late summer to the end of October, where funds unwind positions.
20-day Moving Average: A technical indicator used to gauge short-term price trends.
Gold-Silver Ratio: The ratio of the price of gold to the price of silver, indicating their relative performance.
Locational Stress: Imbalances in the physical delivery of commodities in specific locations, leading to price dislocations.
Monetization of Debt: The process by which a central bank finances government debt by printing money.

Gold's Worst Week Since November and Market Reaction

Gold experienced its worst week since November, falling from record highs near $4378 to around $4100, and approaching $4000. This significant retreat was primarily attributed to liquidations from momentum-linked speculative long positions, specifically from CTAs (Commodity Trading Advisors) and hedge funds in Asian markets. Macro discretionary investors also reduced risk, with their options positions being invalidated.

Market Overview and Data

10-year Yields: Up 2 at 4.02%.
Dollar: Down 15.16 at 98.78.
S&P 500: Up 55 points.
NASDAQ: Up 100 points at 25670.
VIX: Down 69 basis points.
Gold: Down 86 points at 4025.
Silver: Down $1.20 at 47.41.
Copper: Up 5 at 51.2.
WTI Crude Oil: Unchanged at 61.85, well off its lows.
Natural Gas: Down 3 cents at 3.36.
Bitcoin: Up $700, showing strength over the weekend.
Ethereum: Unchanged at 4157, also strong over the weekend.
Palladium: Down 2 points.
Platinum: Down 22 points.
Gold-Silver Ratio: Hovering between 84 and 85.
Grains: Uniformly strong (Soy up 2%, Corn up 1.75%, Wheat up 2.5%).

The overall market reaction, with stocks and crypto up and gold down, is seen as a response to increased certainty following a meeting or conversation involving Trump. This certainty, even if not inherently positive news, has led to markets breathing a sigh of relief, with gold and silver, typically safe havens, being temporarily abandoned. The "rewind" of the gold, silver, and silver-copper trade is evident, with some selling silver and gold to buy copper.

Weekly Recap: Buy Season Begins Despite Profit Taking

Despite the recent profit-taking and selling pressure, the "buy season" for commodities has officially begun. This is evidenced by early buying from RAIA (likely referring to retail investors or specific fund types) and Chinese ETFs, confirmed by Goldman Sachs.

Key Points from the Weekly Report:

Worst Week Since November: Gold's performance marked its worst week since November, breaking a nine-week rally and retreating from record highs.
Drivers of Selling:
- CTA Liquidations: Primarily from momentum-linked speculative longs, particularly US CTAs.
- Hedge Fund Risk Reduction: Across Asian hours, including what were previously referred to as Shanghai traders.
- Macro Discretionary Investors: Derisking and having options positions knocked out.
Resilient Buyers: Importantly, high-conviction and structural buyers did not sell during the price decline.
GLD Redemptions: Minimal, with Chinese US wealth-focused ETFs like GLDM absorbing most of the flow.
Silver Locational Stress: While physical tightness in silver eased as locational stress normalized, the underlying problem is not resolved. Emptying silver vaults in Shanghai suggest potential future short squeezes.
Seasonality Shift: The market is shifting decisively into a supportive seasonal period.
Central Question: The ability of seasonal inflows to overcome remaining CTA liquidations after a strong August-October advance.
Long-Term Demand: Remains intact, but near-term flow battles will dictate direction.

Understanding Buy Season and Sell Season:

Sell Season (Late Summer to End of October): Characterized by tax-loss selling from smaller hedge funds and actively managed mutual funds unwinding positions before their fiscal year-end (end of October). This disproportionately affects commodities.
Buy Season (Post-Halloween to December 31st): Funds that closed positions in sell season begin their new fiscal year in November, receiving reallocations and deploying capital. This also aligns with the calendar year for global investors, leading to increased inflows into commodities.

While "buy season" signifies incoming buying, it does not guarantee an upward trend. The market's direction depends on the balance between this buying and any remaining selling pressure. The current situation is described as a "hangover" after a strong run, with the possibility of an "opposite year" where buy season doesn't immediately translate to price increases.

Investors Are Not "Puking" Gold, CTAs Are

This perspective, attributed to Bloomberg macro analyst Simon White, suggests that while CTAs are actively selling, broader investor sentiment towards gold is not one of panic selling.

Supporting Evidence and Observations:

Gold ETF Buying: Currently below levels seen before earlier interim peaks.
Price Stabilization: Gold prices are stabilizing after an earlier decline.
Volatility: Extreme volatility indicates a potential for continued correction, but not necessarily the end of the broader upward trend.
Interim Top vs. Blow-off Top: The current market behavior is characterized as an interim top, not a blow-off top (a rapid, unsustainable price surge followed by a sharp decline).

Technical Analysis and Outlook

The discussion shifts to technical indicators and price levels to interpret current market behavior.

Gold Technicals:

20-day Moving Average: Institutional interest was observed buying at this level. However, the price has now fallen below it.
- Outlook: If gold does not reclaim the 20-day moving average (currently around 4066) by the end of the week or early next week, a retest of lower levels is expected.
Potential Support Levels:
- 4066: The 20-day moving average.
- 3970: A potential retest level if the 20-day moving average fails to hold.
- Fibonacci Levels: Analysis of the recent move using Fibonacci retracements will be important.
Key Area: A specific price shelf around the current levels is identified as crucial for holding. If this area cracks, further downside is anticipated.
Bullish/Bearish Stance:
- Bullish: Can buy at current levels, risking a close below a certain point.
- Bearish: Would sell, risking a move back above the 20-day moving average.
Next Resistance Level: If gold moves back above the 20-day moving average, the next target is around 4150.

Silver Technicals:

Current Position: Silver is back between moving averages, indicating a technical breakdown to the downside.
Gold-Silver Ratio: The ratio could potentially move back up to 89.
Support Level: Support is expected to be found around 46.50.

Personal Strategy and Outlook:

The speaker expresses a cautious approach to the current buy season, having booked profits and wanting to reassess. They still intend to buy physical gold. The speaker hopes for CTAs to go short over the next month, which could lead to a significant rally in buy season, potentially extending into January and February as shorts cover.

Conclusion and Takeaways

The gold market is undergoing a significant correction driven by CTA liquidations, breaking a prolonged rally. While this has led to a retreat from record highs, the underlying long-term demand for gold remains intact. The market is entering a historically supportive "buy season," but the immediate direction will depend on whether seasonal inflows can absorb the remaining selling pressure. Technical analysis suggests key support levels for gold around the 20-day moving average (4066) and potentially lower at 3970 if this level fails. Silver has shown a technical breakdown. The speaker advocates for a cautious approach, booking profits, and observing market behavior, while also expressing a desire for CTA short-covering to fuel a future rally. The broader context includes ongoing US debt monetization and the impact of economic data like CPI.