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user4779
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Gold-Futures Short Covering - Adam Hamilton - Zealllc

Five stars for this well-written article which so clearly explains the dynamics of the market in gold futures. The synthetic volatility generated by speculators in this market provides a free lunch for long-term accumulators of the metal in two ways: (1) the artificial price movement created by their activity boosts the natural volatility to a level that deters safety-seeking investors (who do not perceive the fake, mean-reverting, component of the volatility), and thus removes some price-supporting demand from the market; (2) the extra oscillation allows below-average cost of acquisition---even, at a minimum, by the mindless strategy of dollar-cost averaging. (Currency-cost averaging yields no advantage in trading a pure Wiener process with no mean-reverting component.)

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Beginning of the headline :Gold’s bottoming consolidation grind continues, with investment demand still garroted by sky-high world stock markets and the parabolic US dollar. With investors missing in action, gold prices remain totally at the mercy of American futures speculators. These perpetually-bearish traders are once again heavily short gold, which has led to sharp short-covering rallies in recent years. The latest one has just started... Read More

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