Positioning in the US dollar is at one of the most extreme levels we’ve seen in years. The currency is also deeply overvalued and technically stretched. With rates rolling over and the Fed nearing the end of its hiking cycle, we may be approaching a major turning point. Meanwhile: Gold and silver are deeply oversold — a reversal in the dollar could unleash a powerful rally in both metals.

Gold positioning is at its most bearish in years. Trend-following funds have continued to sell, yet gold has failed to make a new low. The market is nearing a more complete capitulation, and the pool of potential sellers may be narrowing. 1/ Total open interest in CME gold futures is only around 400,000 contracts. At the same time, gold’s weight in broad commodity indices is rising, while leverage in risk-parity and volatility-targeting portfolios has reached what appears to be a reasonable ceiling. These two large, relatively sticky sources of open interest should be contributing more to positioning. That makes the persistently low total open interest striking. Estimated leverage in long/short quant fund portfolios is approaching 5x, yet gold open interest remains near 400,000 contracts. This divergence supports the view that gold is underallocated. 2/ More specifically, CTAs are estimated to hold their largest net short in gold since October 2021. One way to estimate discretionary traders’ futures positioning is to subtract the portion of CFTC money-manager positions attributable to CTAs. On that basis, discretionary traders have unwound 55% of the long positions they accumulated in June. Spot-flow tracking also suggests that they have largely stayed on the sidelines in recent months. 3/ The key to gold’s overlooked setup is the mismatch between the scale of selling and the price response. Over the past month alone, cumulative CTA selling amounted to 52% of their historical maximum position size. That monthly flow ranks in the third percentile historically—an extreme level of selling. Yet gold has not made a new low. One inference is that offsetting buying flows are growing stronger. A “mystery buyer” appears to be emerging in gold, though we do not know who it is. 4/ For now, every technical signal in gold points lower. Once trend-following signals have all turned bearish, however, further substantial selling would likely require a different scenario: discretionary traders and macro funds building large outright shorts while reserve managers continue to buy. That appears less likely. 5/ The next upside trigger for gold CTAs is $4,321, associated with potential buying of 12%; the next downside trigger is $4,177, associated with potential selling of 11%. The downside trigger is marked as the closer of the two to the current market. A sharper decline could still expand the net short further, while an advance would prompt some short covering.

Bullish positioning in gold is surging: The difference between call open interest and put open interest on the gold ETF, $GLD, hit ~2.4 million contracts this week, its highest level since February. This gap has increased by +1.0 million contracts since Japan’s intervention to support the Yen 3 weeks ago, with the increase accelerating after the US Treasury unexpectedly doubled its planned buybacks of long-dated government debt on Wednesday. This is also more than triple the 2021-2024 average of ~0.8 million contracts. A similar spike to ~2.8 million contracts was recorded in January and February, as gold prices surpassed $5,500/oz for the first time. Renewed macro and currency uncertainty is once again driving investors to aggressively bet on gold to rise. Sentiment is shifting again.

Investor positioning across Asian equities is shifting and opportunities are becoming more market-specific to China, Japan and Korea as flows diverge. Our experts dive into what's driving these shifts in the latest Barclays Brief. 🎧 Listen now: