THE DANGER OF OVER POSITIONING
Although volatility has sat timidly close to its lows in most asset classes recently, VIX below 12 and 10- year bond volatility below 3.75, through this apparent complacency, overall positioning in smaller asset classes has been rising substantially.
Even in the behemoth assets of equity, government bonds and currencies, expansive positioning can lead to greater price movements when unwound, but in commodities, where the base liquidity is naturally tight, forced unwinding can become very explosive. In some assets, like gold, it is obvious where and how the open interest has been building - that being in the non- commercial category, known as speculative, short positions.
the momentum of the bearish trade, i.e. selling gold, the position builds and that consecutively pushes gold lower and making more people want to short it – a momentum vicious circle. Gold has been a speculative gold short is in very elevated air space as
It is also not rocket science to predict that sooner or the speed (normally much faster than it took to build large for normal market liquidity to stomach, and the direction of travel can reverse in a damaging spiral. In gold’s case, spotting these overzealous positioning charts, when they occur, has historically been a
The chart below shows the gold price (the orange line) years when the speculative short has previously been
Chart 1
Source: Bloomberg Chart 2
Source: Bloomberg Chart 3
Source: Bloomberg
22 | ADMISI - The Ghost In The Machine | July/August 2018
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32
