‘Major capitulation event’ may be unfolding in gold, says TD Securities

A further decline in the gold price this week, combined with a surging US dollar and crude oil sell offs, has spooked analysts at Canadian investment bank TD Securities.

The gold price hit an eight-and-a-half month low yesterday, with August futures for the precious metal down 1.52% to US$1,737 per tonne on the Comex market. Meanwhile, the dollar rose to 20-year highs and crude oil fellow below $100 per barrel for the first time in months.

“A major capitulation event may be unfolding in gold,” said TD Securities senior commodity strategist Daniel Ghali. “We see evidence that the steepest outflows from broad commodity funds since the COVID-19 crisis may be catalysing a series of cascading liquidations from various speculative groups.”

“This argues for substantial downside for gold in coming sessions as participants are forced to sell in a vacuum,” he added before noting that the trend seems to be occurring across the commodities space, as investors exit long positions amid fears of a potential recession denting future demand.

Ghali pointed to a sustained downtrend in the copper price after it dropped to 20-month lows yesterday.”Unless the red metal miraculously trades above $9,750 per tonne by year-end, copper markets are settling into a sustained downtrend to reflect a sharp slowing in commodity demand,” he said.

For gold, a drop below $1,800 an ounce and then below the key support of $1,780 an ounce points to ‘indiscriminate selling by broad commodity funds’.