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Weaker USD and reversal in positioning to buoy Gold – TD Securities

In a recently published report, TD Securities analysts argued that a weaker USD and reversal in positioning could open the door for further gains in Gold.

Key quotes

“The USD’s strong momentum is set to lose steam, as recent statements from President Trump accusing America’s trading partners off currency manipulation and his break with tradition to criticize Fed policy provides a catalyst for fundamental factors. The severe flattening of the US yield curve and the lack of positive carry across the Treasury curve when hedging costs are factored in will be major headwinds that start to work against the greenback into 2018. With the ECB QE unwinding on the way, we see the euro trend towards the low 1.20s later this year. This should help deflate the DXY currency index, which has been such a negative for gold of late.”

“USD optimism, trade and EM angst have prompted investors to shun gold, dragging net positioning near the lower bound as money mangers hold excessive shorts and are significantly underweight. In fact, further analysis suggests gold traders hold significant amount of dry-powder to increase their bullish bets, but are constrained on the short-side.”

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