Heads I Win, Tails I Trim: Gold Trim to Win

Gold has been the undisputed king of the 'Short USD'/diversification in recent months. When everyone's already at the party, sometimes it's time to check the exits.

After a monster run driven by everything from yield compression to geopolitical fear, gold is now flashing signs of position fatigue. Expect a pullback as positioning looks stretched, and the macro narrative may have overshot.

I have been "long gold" for months at least

While much of the recent narrative centered around global reserve diversification and de-dollarization, it's clear that a deeper driver of USD weakness might simply be positioning payback.

After a decade of investors leaning heavily into "U.S. Exceptionalism" (often FX unhedged), the pain is now twofold. U.S. assets are underperforming, and the currency itself is sliding.

That double-whammy is forcing a bleed-out that looks less like a grand shift in reserve status and more like an overdue repositioning cycle.

What do you mean by that?

Investors had been heavily concentrated in U.S. assets for years. Chasing U.S. tech, Treasuries, etc, based on the belief in U.S. outperformance (U.S. Exceptionalism). Investors stayed long and didn't hedge their USD exposure, assuming the dollar would remain strong or U.S. assets would continue to lead.

But with Trump Tariffs and trust being lost, growth cooling, geopolitical risks rising from the U.S., those trades have been under pressure. So the crowd was forced to reduce/unwind positions. That selling helped fuel the gold rally because a weaker USD means stronger gold.

Now, the gold long itself is stretched, and I could see a tactical unwind. It's also about private investors rebalancing portfolios that had become too tilted towards one side of the boat. Gold this time.

Gold sometimes trades like a pure "short dollar" play, sometimes it responds to real yields, and other times it's a risk asset proxy for EMFX or a classic "flight to safety' hedge against policy debasement.

This year, gold has been a "heads I win, tails you lose" trade turbocharged by geopolitical chaos and a growing narrative of a "loss of faith" in U.S. assets or the U.S. itself.

Much of gold's year-to-date strength is tied back to the Trump administration's persistent amplification of volatility through unpredictable shocks to global trade, diplomacy, and economic policy.

Trump's policymaking was all about disruption, with little concern for market or economic consequences, as his strategy seemed more like "break stuff first, ask questions later".

This nearly pushed the system off the rails a couple of weeks ago before a series of liquidations and capitulations. In that environment ,gold became the ultimate "buy it now and figure out later" asset.

If you followed you, you may have gotten gold exposure through ETFs, PAXG, or Tether Gold. If you remember my series of tweets repeatedly praising gold exposure.

There are now signals of extreme positioning, sentiment overshoots, and macro factor shifts. When these signals happen, the forward return for gold is usually a bit poor. So from a tactical perspective, this gives us a good excuse to take profit on those gold longs.

I know Goldman Sachs is now calling for Gold to hit $4000/oz

Even if the bigger picture remains bullish for gold, the near-term setup is becoming increasingly tricky.

I STILL LIKE GOLD AS A PORTFOLIO DIVERSIFIER especially against a backdrop of rising geopolitical risk, central banks lean dovish again etc.

But Gold can pull back meaningfully right here

Historically, poor hit rates and deeply negative forward excess return when gold is stretched. If anything, a correction would reset the trade and open the door for a new buying opportunity.

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