Are CTAs Squeezing Gold?

1.) GOLD – Yesterday, I commented that it would not be surprising to see gold take a bit of a breather and test the $4,125 area. That was wrong, as gold is up another +3% this morning to $4,368. Is this a “squeeze” in the making? Maybe. What’s a squeeze? When lots of investors or a few really big investors are short an asset and then are forced to buy that asset to cover their position before it hits them with too big of a loss. CTAs are some of the biggest money flows in the market, and they remain short gold. If this breakout in gold gains traction (a hold above $4,330 would be pretty bullish), systematic buying could add meaningful upside convexity to the move. Buying the dips has likely now become better.

2.) JOBS – The labor market is always an important macro point. Heating up suggests that the Fed might have to intervene to cool things off. Cooling off and the market would expect the Fed to step aside. Non-farm payrolls came out this morning and missed by a mile! Expectations were for 80,000 new jobs…we got -23,000, and prior months were revised down by -103,000. This is not an overheating labor market. This report was mostly due to a -53,000 loss of government jobs. Nevertheless, that was a picture of a weakening labor market, which markets take as a Fed that likely backs off rate hike plans if these kinds of jobs numbers continue. Warsh has shown a propensity to let the market correct imbalances in the system versus Fed intervention at every turn. That is actually good, and markets just need to accept and adjust. They usually do. What’s interesting is that employers announced plans to hire 16,095 workers, which is the highest July total since 2022. So far this year, companies have announced plans to hire 107,500 workers, up 25% from the 86,132 plans announced through July 2022. That is the strongest January-to-July total since 2023. Announcements are one thing…actions are another. The bond market is taking this as a likely sign that the Fed continues to let markets be markets and stand still as rates on 2’s all the way out to 30’s are dropping.

3.) LABELS – Be careful of the labels and narratives that get pushed around on social media and financial television. One of the biggest mistakes in investing is confusing labels with reality. Last week, the Nasdaq “entered a correction.” Sounds scary, right?! But all it means is that the index fell 10% from its recent high. That’s the entire definition. And two days later, it was no longer in a correction. The moment people hear words like “correction” or “bear market,” many think something fundamentally changed. They become more bearish, sell stocks, or hedge their portfolios at the worst time possible. But nothing fundamentally changed. The market simply crossed an arbitrary percentage that someone decided to give a name. Reality doesn’t care what we call it. It only cares what actually happened. Onward.