Investors are Not Puking Gold, CTAs are

Gold ETF buying is currently below the levels observed before earlier interim peaks in the gold market. The price is stabilizing after being down roughly 2 percent earlier today. Extreme volatility indicates the correction can continue. Current positioning does not yet signal the end of the broader upward trend.

Simon White, Bloomberg macro strategist highlights retail investor behavior during speculative phases.

"In a typical bubble, retail traders are generally the last ones into the market, frenziedly taking prices to unsustainable highs before the inevitable plunge."

GLD holdings data provides the primary reference point. The largest gold ETF is showing a smaller divergence between stated holdings and implied holdings than prior significant turning points. "Buying of gold ETFs is less extreme now than it was before the metal reached previous interim tops."

The discrepancy between measures often expands when markets trend strongly. Dollar inflows divided by a rising end-of-day price can understate the quantity of gold effectively acquired at lower intraday averages. This mechanical effect prevents premature interpretation of aggressive retail demand based solely on implied holdings.

Fund flows present contrasting signals across related products. GLD experienced some outflows on Wednesday, historically linked to short term gold strength following similar moves.

"We will see if history repeats."

Gold miners remain more heavily bought. The GDX ETF has recorded continued inflows during a net drawdown in price of more than 13 percent. Persistent buying into weakness suggests little reduction in investor enthusiasm.

If ETF flow behavior is a reliable proxy for retail participation then the evidence points to continued engagement rather than investor exhaustion."It does not look like they are ready to throw in the towel yet."

The conclusion is conditional. The correction likely continues in the near term. A later surge in retail accumulation may still emerge to complete the cycle once current volatility resolves.

ZeroHedge noted that Nomura's Charlie McElligott (the guy who was bearish earlier in the year and was correct for a short time) thinks "everybody" is saying they want Gold to pull back down to ~$3900-handle during the recent crowding / trend unwind to come first, before consensually then wanting to "buy that dip"... and that makes him think we might not get down there at this moment, especially as we held the 20dma...

Arrow= 20dma. line= next level (fib retracement)

In other words, McElligott warns that "buyers are again higher" thinking they missed the pullback and seemingly chasing back-in.

We think: The fact the buying is "chasing it higher" is encouraging. The risk is if there will be buying below the 20dma. If it does not maintain $4041 by end of week give or take, then $3970 (the yellow line) may come quickly.