Goldmember

[25/09/25]

Before you engage… this is about as contrarian as they come. I am well aware that it contrasts with the DNA of most readers.

XAUUSD is up 46% YTD. It is up 84% since the beginning of 2024. The DXY is down 5% over the same period. In the price increase is two persistent geopolitical tragedies, a de-dollarization/debasement trade of the soundest logic, aggressive and wide-spread openly-reported central bank reserve accumulation, an excitable CTA community lip-licking at the succession of trending highs culminating in the eye watering % gains aforementioned, as well as various metal-specific US tariff concerns that have stressed regional commodities exchanges and associated storage and logistics.

The most recent acceleration in demand, confirmed by the enormous growth in GCZ5 Dec XAU future open interest, has been the technical break-out through the 3,430 pivot depicted by the red line on the chart below, which chimed with the hasty rebuilding of the USD short trade in the FX space - responsible for much of the spec community’s YTD performance as it collapsed in April and had always been ear-marked to resume in Q3.

That USD trade, as detailed in the previous blog post [EURUSD update 17/09/25], is suffering somewhat. Pain is being inflicted across the board as the post-Fed range breaks failed and we slump back into a choppy regime, with carry:vol ratios high enough to again lure people into the darlings (ZAR, TRY). I sense that the most annoying of these USD reversals (i.e. those that were built reluctantly into/over the Fed and with more than a sprinkle of FOMO) are EURUSD longs and USDCNH shorts. Yesterday saw aggressive cutting of both.

All said, I am wondering if the XAU long - given this too has A) come an awful long way and B) is in the same grouping as EURUSD and USDCNH when tested for ‘addition at poor levels recently’ symptoms - is also vulnerable in coming sessions or weeks. In this market I suspect pain felt elsewhere may be funded by the winners - of which XAU is front of pack - and I worry that we do not have a fresh USD lower catalyst for some time now - outside of a US government shut-down, which is quickly on our radars but may be a severe enough VaR shock that it actually sees books collapsed and asset-shedding… i.e. the ultimate resolution may be a large deleveraging in US tech stocks/indices and XAU and XAG. I am therefore playing for a pull-back in XAUUSD, but in limited-loss format and with enough time in the lifespan of the trade to weather any initial volatility.

Trade expression of choice:

The cash trade would be: Short GCZ5 Dec25 Gold Future at 3785 (spot equivalent $3755t/oz) with a tight stop through the highs at 3840 ($3,810 spot equivalent). Risking 1.5% on the idea to make 8%, which will either work very well very quickly, or be stopped within a short timeframe!

I am however going to anticipate greater chop in the short-term and suspect that a 1.5% cash stop in a 16 vol ccy will become a regret. I also want more leverage as I believe the move will play out quickly (in %-terms) when it happens. I am therefore instead buying a 3m $3,450 digital XAUUSD put for 12%. Expiry right around Xmas. A late profit-taking gift? The strike is just above the tech break, which is 8% beneath spot, but these options are expensive, with the OTM strike and favourable (3792) ATMF not doing much to make the 16 vol handle more palatable. Hopefully expensive for a reason.

Thanks for reading!