On balance, positioning is probably gold’s most positive feature right now. With net longs sitting at the lowest levels in more than a decade, the scope for further selling at this point is becoming increasingly limited. That gold prices are back to levels last seen in 2010 and the fact that positioning is now very light suggests that gold has already done a lot in terms of the necessary
adjustments.Another wave of weakness is still possible heading into the September FOMC meeting, but it would have to take a considerable amount of conviction to go aggressively short around these levels. To put into context, back in 2013, gold fell by as much as 30% over the course of the year – to see that kind of decline would take prices down to $770 from here. Even in 2014 when gold’s performance for the year was more or less flat, from the peak in Q1 to the trough in Q4 prices were down by as much as 19% – a similar price move now would suggest gold prices falling to $891. To be sure, the macro environment poses considerable challenges for gold, but not to the extent that deserves price declines similar to what has occurred in the last couple years, especially given the adjustments that have already taken place.
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