Gold hits the brakes, long positions sharply decrease, analysts warn: the trend has "decoupled" from the fundamentals!

The gold frenzy triggered by the Trump trade war may have gone a bit too far, with multiple indicators such as the options market, capital flows, and technical aspects issuing warning signals, all suggesting an increased risk of a gold price correction.

After reaching a record high of $3,500 during trading last week, gold prices have now corrected by more than 6%. Some analysts believe that part of the reason is that there are signs indicating that some trade tensions may be easing.

As gold quickly corrects, long positions are also being significantly reduced. On April 28, reports indicated that, according to the latest data from the U.S. Commodity Futures Trading Commission, hedge fund managers have reduced their net long positions in gold futures and options to the lowest level in over a year.

The report noted that last week, options trading for the SPDR Gold Shares ETF surpassed 1.3 million contracts, reaching unprecedented levels. At the same time, the cost of hedging against a decline in this ETF is at its lowest level since August, while implied volatility has surged, which is an unusual pattern.

Barclays strategist Stefano Pascale stated that the surge in gold call options following Trump's announcement of "reciprocal tariffs" on April 2 has led to an inverted skew indicator for gold, combined with a sharp reduction in hedge fund long positions and the recent correction in gold prices, all serve as reasons for a cautious outlook on gold prices in the short term.

Pascale also added that the movement of gold has become "disconnected" from fundamental drivers such as the U.S. dollar and real interest rates, and technical indicators are signaling an excessive upward trend.

Not Just Technical Indicators Issuing Warning Signals

Regarding the excessive upward trend in gold mentioned by Barclays strategists, Guotai Junan Securities also believes that the technical indicators for gold have reached an overbought area on a weekly level, with significant signs of overheated market sentiment, suggesting that gold needs a "monthly-level correction," which is a necessary process after the previous short-term driving factors have been overextended.

As previously mentioned by Wall Street Insight, Nomura Securities pointed out in a report that gold prices are more than 25% above the 200-day moving average, at a "rather absurd" level of overheating. Historical data shows that whenever gold prices deviate so significantly from the 200-day moving average, there tends to be a noticeable correction in gold prices within the next two months.

In addition, Nomura Securities' research also listed two other key warning signals, including:

1. The "Federal Reserve's Comprehensive Expected Capital Expenditure Index" recently fell below -4. Data shows that when this index falls below -4, gold tends to perform poorly in the following two months

2. The capital flow in the gold market has shown a historically significant anomaly with large inflows and outflows, which has occurred 9 times in history. The previous 8 instances almost precisely predicted that gold would face a correction, and the worst performance usually concentrated within the next 2 months