The gold market faces selling pressure from algorithmic funds, with Goldman Sachs warning of market risks

According to the latest analysis by Goldman Sachs’ trading division, the U.S. stock market, including the gold market, is expected to face new selling pressure from algorithmic funds that mechanically track price movements from this week into next week. The firm notes that although there was a temporary rebound from last week’s decline, a break below technical levels could trigger the automatic sell-off mechanisms to activate again.

Breakdown of Key S&P 500 Levels Accelerates CTA-Linked Selling

When the prominent U.S. S&P 500 index breaches short-term support levels, trend-following funds known as Commodity Trading Advisors (CTAs) automatically initiate sell orders. Goldman Sachs’ analysis indicates that this technical trigger point breach could lead to a chain reaction of selling pressure across the entire market.

According to a related report from Jin10, these systematic investment strategies sell stocks mechanically based solely on technical signals, regardless of fundamental factors. Such automatic sell-offs are also likely to impact a broad range of asset classes, including the gold market.

Large-Scale Sell-Offs Expected Under Multiple Scenarios

Goldman Sachs suggests several scenarios based on upcoming market developments. If the stock market declines again, approximately $33 billion in sell-offs could occur. In a more severe scenario, if the S&P 500 falls further below 6,707 points, systematic sell-offs could reach up to $80 billion over the next month.

Conversely, if the market remains stable, CTA funds are still projected to sell about $15.4 billion worth of U.S. stocks. Even if stock prices rebound and enter an upward phase, these algorithmic funds could continue selling around $8.7 billion, indicating persistent selling pressure across all scenarios.

Chain Reaction in Markets Linked to Gold and Broader Asset Classes

Goldman Sachs’ warning extends beyond just the U.S. stock market. It suggests a market contagion mechanism that could affect commodity markets, including gold, and other asset classes. Large-scale sell-offs by algorithmic funds may trigger portfolio rebalancing, leading to simultaneous selling pressures across multiple asset classes.

For investors, understanding these systematic sell-off mechanisms is crucial for developing effective market response strategies. When considering allocations across various assets, including gold, it is important to keep in mind the existence of these automatic sell triggers.