Incoming data will remain the notable potential catalyst for a short covering rally – TDS

Gold recorded its second straight weekly loss as expectations of an imminent rate cut by the Fed faded. Economists at TD Securities analyze the yellow metal’s outlook.

XAU/USD’s set-up is ripe with asymmetry and prone to a material short squeeze

Strong inflation data following the strong jobs has put the yellow metal on the back foot as upbeat data will continue to suggest the Federal Reserve may not be in any hurry to start easing monetary policy. However, while the relentless outflows in Gold speculative positions and ETFs are likely related to macroeconomic incentives, the positioning now suggests that macro traders are historically underpositioned ahead of a Fed cutting cycle. This highlights a set-up for the yellow metal that is ripe with asymmetry and prone to a material short squeeze as Fed officials contemplate the start of a cutting cycle. 

For the time being, the incoming data will remain the notable potential catalyst for a potential short covering rally.