The Phaserl


Gold benefits from market uncertainty

by Alasdair Macleod, Gold Money:

The outlook for gold is now more positive than it has been for some time. After a prolonged period of low volatility as funds invested in ever-greater risk, markets have snapped and volatility has jumped. In short, we are swinging very suddenly from complacency to reality.

Financial markets hit a serious air-pocket this week, with a collapse in US Treasury bond yields in a dash-for-cash, illustrated in the chart below.

On Wednesday the yield fell from 2.21% to 1.87%, a move of over three whole points on the price, which for a ten-year maturity is truly exceptional, though it did rally subsequently. The relevance to precious metals is there are many hedge funds which have bet on rising bond yields and a falling gold price. And given that these funds gear their trades up through futures markets, the losses will have been considerable. Indeed, hedge funds recently held near-record short positions in gold, shown in the next chart of Managed Money shorts on Comex.

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