Markets respond more to the rate of change than the absolute level in stress environments. 2-Year US yields have shot up +70bps, and US 10-Year TIPs yield are up +42bps in two weeks. But ST, the move in yields is near impossible for gold to ignore given that CTAs/quant-types are dominating the tape. Relative to these stress markers, gold appears too low if market protection hedges expire into OpEx. If we see another leg higher in volatility, gold will likely follow in time.
ALLVOL2 (orange line) is a combination of weighted equity, bond, and currency volatility. The chart below shows that IG CDS spreads are making new highs, while equity market depth (inverted axis) is making new lows. The volatility curve is elevated and flat (~+30), making vol protection expensive if further protection is chased. If this hedge protection rolls off, then there should be a need for more safe-haven assets into the next quarter. I do not have access to such data, but I wonder how much put delta will be rolling off this OpEx. This time, the overall macro backdrop was worse than the previous selling leg several weeks ago. The last equity market selling leg that ended ~May 20 was generally well hedged (i.e., not a real sell-off), blunting gold's response. But when combined with CDS spreads also at breakout levels and market depth at such low readings, the combination in the past has proven deadly for risk assets. Volatility indices for currencies (JPMVXYG7), Treasuries (MOVE), and equities (VIX) are all set up for a synchronous move higher. Risk-off breakouts are occurring everywhere (currencies, bonds, credit, equities) except in commodities, which remained spared from the general market mayhem. Recession rising, investors are increasingly turning to gold as a hedge," Nitesh Shah, head of Europe's commodities & macroeconomic research at fund management firm Wisdom Tree said in a note.Friday's all-around bad CPI print jolted markets out of their bear market rally and back to pricing a hard landing outcome.
#GOLD BACKDROP SERIES#
Despite theįederal Reserve trying to control soaring consumer prices by embarking on a series of rapid rate rises, retail investors are cautious and are looking togold as a potential safe haven against inflation, SERIX sentiment data shows. It comes against a backdrop of rising interest rates aimed at cooling down red-hot inflation that is pervading the global economy. The dollar index has risen nearly 7% this year, while gold has gained almost 1%. Gold typically tends to move inversely to the US dollar, but growing concern over the global rise in inflation has started to lure investors and prompted this correlation to break down. He added: "Considering the macroeconomic backdrop, it's no surprise to see investors looking to take advantage of a dip in the gold price to make safe haven allocations." "After a period of decline in May that saw the gold price drop below $1,800 USD on the 16th, the gold price started what looked like a new rally in the last few days of the month, supported by both the dollar and euro undergoing a weak phase," said Michael Hall, head of distribution at Spectrum Markets in a note. This was the highest such reading since the data series began, Spectrum said.Ī reading below 100 on the SERIX data series suggests sentiment is bearish, while a reading above that level indicates bullishness.
Spectrum said its European Retail Investor Index (SERIX) hit a high of 116 in the past month, indicating the optimism among investors towards bullion, which can serve as a store of value in times of market turmoil or rising inflation. Retail investors are more bullish towards gold than ever at the moment, even though the dollar is holding strong, as concerns about US inflation ramps up, according to data from European derivatives trading platform Spectrum Markets released on Wednesday.
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