Investing.com - Speculative gold selling accelerated in late October, driving prices lower and decoupling the precious metal from falling real interest rates as non-traditional investors liquidated massive positions.
Managed Money, "Other," and Non-Reportable traders offloaded $8 billion in gold positions between Oct. 20 and Oct. 27, according to Commodity Futures Trading Commission (CFTC) Commitment of Traders data. The sell-off marks a fifth consecutive week of bearish flows, bringing cumulative speculative outflows to $19.5 billion since Sept. 22.
The weekly outflow was driven by $5.2 billion in long liquidations and $2.8 billion in newly established short positions.
Categorically, the selling was overwhelmingly dominated by "Other" and Non-Reportable traders, which accounted for approximately 95% of the total outflows. Gross long selling by the "Other" category alone totaled $4 billion.
Yields ignored as dollar and oil bite
The aggressive liquidation helps explain gold's lackluster price action during the period. The precious metal slipped 1.6% during the observation window, seemingly ignoring an 11-basis-point drop in U.S. 10-year real yields - a macroeconomic shift that typically provides a tailwind for non-yielding bullion.
Instead, gold faced headwinds from a 0.6% strengthening in the U.S. dollar and a 4.1% rally in Brent crude oil. Analysts noted that fears surrounding sovereign liquidity management and the resilience of the greenback likely sparked the unwinding of "Other" positions. Rolling six-month correlations for "Other" gross longs versus both the dollar index (DXY) and the front-month Brent contract have been moderately negative.
Despite the heavy selling, the market setup remains challenging for gold bulls. While Managed Money net positioning has stayed relatively low, "Other" gross long positions on Oct. 27 remained above their two-year median in both notional terms and as a percentage of open interest, leaving the door open for further long liquidations.
Gold's weakness deepened into the end of the month, with the metal shedding an additional 4.3% between Oct. 27 and Oct. 30. Another 3.7% surge in Brent crude prices during those final days appeared to completely overshadow slight retracements in both the dollar and real yields.
The extended slide prompted a reaction in the derivatives market, where changes in the options surface indicated active downside hedging and outright bearish bets. Gold's three-month implied volatility richened, while the normalized 25-delta put-call skew spiked to the 85th percentile of its one-year range.
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