Gold Slips as Bank of America Flags Risk of CTA-Driven Selloff

Gold prices declined on Monday, pressured by warnings from Bank of America that further weakness could spark a wave of stop-loss selling by commodity trading advisors (CTAs). The yellow metal has been under sustained pressure over the past week, with prices nearing levels that could prompt algorithmic traders to start unwinding bullish bets.

According to a note from Bank of America, medium- to long-term trend-following funds are likely holding close to their maximum long positions in gold. The bank’s models suggest that a drop of between 1% and 3.5% in futures prices from current levels could “accelerate stop-loss selling” as these systematic traders rush to exit positions to cap their losses.

The bank’s commentary also extended to other areas of the commodities space. It pointed to a mixed outlook in copper markets, where CME copper futures could attract more buying from long-term trend followers, while contracts on the London Metal Exchange are facing downside pressure. This split, Bank of America noted, reflects differing regional trading dynamics and sentiment.

In agriculture, Bank of America flagged significant positioning imbalances in soybean-related products. It characterized soybean oil as being “stretched long,” while noting that soybean meal positions are “stretched short.” Such asymmetry in positioning could lead to sharp moves in either direction.

Notably, the bank sees soybean meal as especially vulnerable to a reversal. A shift in sentiment could prompt short-covering from CTAs, leading to what Bank of America described as a “significant move higher” if bullish momentum takes hold.

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