Despite rising inflation, gold has experienced a remarkable rally, its strongest since October, as investors anticipate interest rate cuts by the Federal Reserve.

The rally has been driven by both fundamental and technical factors.

Technically, the rally in bond prices and the sell-off in the US dollar, which typically influence gold prices, have partially contributed to the rally.

However, analysis suggests that there are additional factors at play.

One factor is the positioning of microfunds.

The prospect of an interest rate cut forced many microfunds to switch from negative exposure to gold to positive exposure, covering their short positions.

This microenvironment has provided support for gold.

Historically, gold tends to perform well after the start of an interest rate cut cycle.

However, the current rally suggests that gold may be running ahead of itself.

Since 1980, gold has often been muted before the first cut, only rallying significantly after the cut has been delivered.

Given that the rally has already captured much of the anticipated post-cut upside, caution is advised.

Using options strategies with built-in insurance could be an alternative to waiting for a better entry point.

Regarding buyers, retail investors have been largely absent from the rally, while microfunds have turned long and central banks have been consistently purchasing gold.

In summary, while gold’s rally has been impressive, it may be prudent to approach cautiously as it may have already priced in some of the anticipated rate cuts.

The market’s positioning and technical factors have contributed to the rally, but it remains to be seen whether it will continue at the same pace once the first cut is delivered.

Gold has rallied due to technical factors and microfund positioning.

The rally in bond prices and sell-off in the US dollar have contributed to the rally, and microfunds have switched from negative exposure to gold to positive exposure.

Historically, gold performs well after the start of an interest rate cut cycle, but the current rally may be running ahead of itself.

Gold has often been muted before the first cut, only rallying significantly after the cut has been delivered.

Caution is advised, and options strategies with built-in insurance could be an alternative to waiting for a better entry point.

The rally has already captured much of the anticipated post-cut upside, and it is unclear whether the rally will continue at the same pace once the first cut is delivered.