Former Head of Precious Metals at JP Morgan Robert Gotlieb of Watch Gold weighs in on the massive sell-off in gold and silver this week, advising that sometimes the best trade is no trade:
“Gold, silver, and crude oil have all experienced significant declines today, reflecting a broad reduction in risk positioning across commodity markets.
Several indicators suggest that positioning has become healthier (less crowded):
• CME open interest has declined by roughly 40,000 contracts over the past month.
• Total ETF holdings have continued to trend lower.
• Speculative positions have been pared back considerably.
• One-month implied option volatility has also declined, indicating reduced expectations for near-term price swings and a less stressed market environment.
The excess optimism and crowded positioning that characterized the market a few months ago have largely been washed out.
However, caution remains warranted, see Watchgold.org 1 month gold/DXY chart below.
What was initially expected to be a two-week conflict has now stretched beyond three months, with no clear resolution in sight.
The potential for further geopolitical escalation, policy uncertainty, and volatility remains elevated.
While long-term fundamentals for precious metals remain constructive, I believe this is a period where patience is warranted.
For many investors, it may make sense to remain on the sidelines, aside from maintaining core precious metals positions that serve as portfolio diversification and risk-management tools.
One encouraging development is that the People’s Bank of China reportedly added approximately 10 tons of gold to its reserves in May, reinforcing the ongoing trend of central bank accumulation and reserve diversification.
Sometimes the best trade is no trade.
What do you think? Has this correction created a buying opportunity, or is additional downside risk still ahead?”
