One sided, in more ways than one. It’s been a frustrating to be away from the office a

One sided, in more ways than one.

It’s been a frustrating to be away from the office at a conference even one as good as the @ThePLSA.

Now that I’m back at my desk and in front of my spreadsheets I’d like to share some thoughts about #gold https://t.co/BJ5AhYQUFM

Gold has been a one-sided market for a while: investment and speculative demand is dominating trading while the Indian and Chinese physical markets have been quiet.

Futures, OTC and ETF investors have driven gold to recent highs. Here is the Comex COTR as an illustration. https://t.co/wQXrh8sLAC

With investors and speculators in charge of the move in #gold, the price has tracked its usual financial market indicators, especially real US interest rates.

The move in gold over the past fortnight have tracked real rates very closely. https://t.co/P5x4EW0LSF

But there is another way that markets are one-sided now. Sharp falls in other asset prices and a steep pick-up in volatility has triggered liquidation or de-grossing, by investors. https://t.co/3hFFfO9UW3

Based on conversations with bank salespeople, the liquidations of 'everything' - both risk assets like equities and the hedges - like government bonds (and #gold) has led to odd-looking price distortions, including US yields increasing and gold falling during a crisis.

Of course we’ve also heard about ‘margin calls forcing selling’ from many commentators, but I think de-grossing or ‘fire-sale selling’ has been a bigger factor.

This from the FT summarises it very well.

https://t.co/SmZdnvPADO via @financialtimes

For those that don't have access to the @FT premium content, here are a few choice phrases: https://t.co/56JmH8z7B0

Of course we've seen this sort of behaviour before. Gold sold off for a while after the failure of Lehmann Brothers, but ended the year higher. Similarly during other risk-off events gold has been sold first.

But once positions have been cut, a more balanced market prevailed.

Based on conversations with traders, we have probably not seen the end of investors de-grossing despite the green across equity futures markets today. https://t.co/vHozjtFMZ8

Our CEO, David Tait, a prop trader for much of his career put it like this in an email:

"So, in my opinion we are at a crucial juncture - Central Banks have limited tools, the fiscal response has been patchy and uneven and once the true economic impact of events....

...is apparent, longer term questions will be asked. Under these circumstances investors are likely to return to the gold market, perhaps in even greater size than in 2008/2009.

Best of luck!

I should have added, keep looking at #goldhub and especially our #blog to see our short-term thinking about gold.

I'll be in the office more than usual and will be posting thoughts regularly.