Gold bugs beware – a technical breakdown could be the catalyst needed to squeeze a massive amount of complacent length in the yellow metal, according to strategists at TD Securities.

Growing valuation gap between gold and real rates to exacerbate the repricing lower

“The trading bias is still to the downside, but participants are still looking for catalysts to flush out the massive amount of complacent length. We see risks that technical breakdown could be the catalyst. The bar for CTA liquidation is growing thin, as we estimate that a break below $1,810 would catalyze a substantial selling program from systematic trend followers.” 

“Prices have managed to break below the bull-market defining uptrend from 2019, which may catalyze additional liquidations from the complacent bulls at prop-shops.” 

“A growing valuation gap between gold and real rates might eventually exacerbate the repricing lower in the yellow metal, despite it being attributed to both an undue rise in real rates given quantitative tightening, and to the still-massive complacent length in the yellow metal which has kept the prices elevated.”