Thread by @EdVanDerWalt

Why Gold Plunged on Friday, a thread.

So, a few people dm'ed me to ask about gold's sell-off as risk assets came under pressure at the tail end of last week.
1/

For those who weren't watching, it spiked to $1,690/oz on Monday, only to pull back to $1,580 by Friday even with markets starting to do things they haven't done since the global financial crisis.
2/
bloomberg.com/news/articles/…

First, let's look at who WEREN'T selling gold.
Global ETF investors didn't sell. They added eight tons to the biggest stockpile in hostory.
3/

Nor were off-exchange retail investors sellers.
Friends at @BullionVault had their busiest week since Trump was elected, with most action on the buyside. (Note: That was before the close of play)
4/

There was selling in the recycling market as this excellent piece by @helloimjustina (and others) show.
5/
bloomberg.com/news/articles/…

But that market is too small to swing the pendulum.
6/

From CFTC data, we can see that through Tuesday, hedge funds and other money managers were well-behaved.
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But it doesn't tell us what they were doing later in the week. And it's significant that their pace of purchases slowed even going into the 7-year high price.
8/

Given the big volume on Comex last week - eyeballing the lower chart, it looks like a record to me - it would appear most of the action was in the futures market.
9/

And why would leveraged money managers sell gold just when things get hairy?
In a word: margin calls.
As Georgette Boele at @ABNAMRO put it:
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Basically, the idea is that they need to get their hands on cash to prevent their leveraged positions being stopped out, and sell anything to get hold of cash.
(This is also why correlations across asset classes rise during a crash)
11/

So it's Really bad when gold sells off with risky assets.
For an interesting comparison, look at 2008, when it sold off along with most other assets from March through October. And it contrasts with the slower, less severe late-2018 rout, when gold rose as the S&P 500 fell.
12/

"So, wait, is gold a poor haven?"
No.
During the later phases of a sell-off, when central banks start easing, the metal really comes into its own.
That's what drove it to >$1,900 post-2008.
And that makes me think my end of year target may be low.
(See Terminal for more)
/ends