Gold bull market over? Many "longs" have left, but "shorts" haven't increased.

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The three-year bull market in gold has come to an end, but the market has not yet shown signs of large-scale short-selling—the nature of this correction is more like a collective retreat by the bulls rather than a proactive attack from the bears.

In January this year, gold prices plunged sharply after reaching a historical high of nearly $5,600/ounce. Bloomberg-tracked gold ETFs saw cumulative outflows approaching $18 billion. Last month, gold repeatedly fell below the $4,000/ounce threshold, officially entering a bear market, with the single-month decline marking the largest in nearly twenty years.

However, position data from the New York futures market show that asset management institutions’ short positions remain near historic lows. Bart Melek, Head of Commodity Strategy at TD Securities, said, the current selling pressure mainly comes from long liquidations rather than the establishment of short positions, which means the market still has considerable space to extend further downward.

Decline Driven by Long Liquidation, Shorts Have Not Yet Entered

In the New York futures market, fund positions must be reported to regulators, providing a relatively transparent window to observe market sentiment. Data show that asset management institutions' short positions are still close to historical lows, with only a slight shift toward net short positions in recent weeks.

“The recent correction in gold is mostly driven by long liquidation, rather than investors actively establishing short exposure,” said Melek. “There are currently very few short positions in the market, leaving room for significant expansion, and there remain plenty of long positions that could be further reduced.”

The primary players in the New York market, known as commodity trading advisors (CTA)—short-term traders—usually operate based on technicals, not fundamentals. TD Securities analysis shows that these investors have continued to take profits from their long positions over the past year, but overall, their net shift to shorts remains limited.

If the macro environment worsens further—especially if the dollar and yields remain high, or inflation keeps the Fed hawkish—these fast-moving quant funds and speculative investors would still have plenty of room to increase shorts.

ETF Funds Continue to Flow Out, Becoming a Marginal Pricing Force

For retail and institutional investors, physical gold-backed ETFs are among the most mainstream tools for participating in the gold market, and their fund flows are a key indicator of gold's relative attractiveness.

Since the outbreak of the Iran war, the wave of ETF investor selling has continually pressured gold prices, driving gold to record its largest single-month drop in nearly twenty years in June. Despite gold's typical strength during geopolitical turmoil, this conflict has triggered a surge in oil prices and greater market concern—with increased expectations for rate hikes weakening gold's appeal versus income-generating assets such as Treasuries, ETF outflows have accelerated.

JPMorgan analysts noted in a research report that, ETF investors are particularly sensitive to changes in borrowing costs. As other sources of demand become subdued, they have become the "marginal pricing force" in the gold market. The bank currently expects global gold ETFs to see net outflows of about 50 tons this year, a sharp reversal from its earlier forecast of roughly 400 tons in net inflows. Led by Greg Shearer, the analysts said, “Macro and rate environments may continue to suppress gold prices within a lower range for the coming quarters,” but the bank maintains a long-term bullish stance.

Central Bank Gold Purchases Continue, China Increases Holdings for 20 Consecutive Months

Central bank demand has been a key pillar of the gold bull market for many years. Early in the Iran war, news that central banks in Turkey, Russia, and Azerbaijan were reducing gold holdings temporarily dampened market sentiment, raising investor concerns over large-scale central bank selling.

However, recent industry data show that overall, central banks actually accelerated gold purchases in Q1, and survey data indicate an intention to continue increasing holdings.

The People's Bank of China stood out, actively buying during the gold price decline. As one of the world's largest sovereign buyers, the Chinese central bank has increased gold holdings for 20 consecutive months, with June’s purchase speed setting a record since 2023.

"Overall, I see central banks maintaining consistency regarding gold reserves," said Chris Louney, commodity strategist at RBC Capital Markets. "If your aim is de-dollarization and diversification, gold—deeply embedded in the global monetary system as a long-term reserve asset—naturally stands out."

Bulls Hurt, but Long-Term Bullish Logic Remains Intact

Buying gold used to be one of Wall Street's consensus trades for years, but recently several banks have lowered their gold forecasts, including UBS, Goldman Sachs, and Deutsche Bank.

Nevertheless, analysts generally insist that the long-term bull logic for gold remains intact, although few are rushing to call the bottom. Nicky Shiels, Head of Metals Strategy at MKS Pamp SA, said, the market has moved from "exuberance to liquidation," and the next rally may require the dollar’s recent upward momentum to subside, as well as a return of structural themes like currency depreciation to dominate the market.

After suffering the worst single-month drop in nearly twenty years, gold prices have stabilized above $4,000/ounce over the past week, as investors reduced bets on rate hikes and a stronger dollar.

Some investors have begun to position. Alexandre Carrier of DNCA Invest Strategic Resource Fund said his allocation to precious metals had been relatively low compared to other asset classes, but he plans to buy on this dip. “Once the rate outlook is clearer and the dollar’s rise halts, we may increase our holdings,” he said.

Risk Warning and DisclaimerThe market has risks; investment should be done cautiously. This article does not constitute personal investment advice, nor does it take into account any individual user's special investment goals, financial situation, or needs. Users should consider whether any opinions, viewpoints, or conclusions in this article suit their particular circumstances. Invest accordingly at your own risk. ```