In finance books, there are numerous charts that start on the bottom left and go the the top right, and often, such charts contain two or more assets, to highlight just how sexy the main asset is. These charts may illustrate a concept, strategy, or historical performance, but the insidious reason they exist is to draw you in as a reader, to make you want to figure out how you could earn such staggering returns. Any time you see such a chart, forget what they are talking about; the point is to wet your appetite; to make your d*** hard.
So, gold. It just keeps going up! Why?
A lot of ink has been spilt on explanations all along. They make sense. But the market runs on emotions, and the best explanation why gold is going up right now is simply because of FOMO. People look at the thing, and even when there are good reasons to short it, they chicken out, so they wait until it’s time to buy it again. It’s happening in crypto too.
If you know behavioural finance, you can probably explain what is going on. But quants hate behavioural finance because even though you can put together some sort of a hypothesis, you can’t operationalize it, and thereby test it. It is like astrology to us but at least you can mathematize astrology. So to all your behavioural science tosh we say Cool story, bro and then go back to actual science. (I’m being overly critical. Yes I have read behavioural science books and found then helpful. But this is a quant blog. To be fair, quantitative finance is not a real science either, it’s just very scientific.)
Anyway, I am writing this because I think Gold exemplifies a new (?) phenomenon in the markets. People see a chart going up, their get all hot and bothered, they buy it, or wait for the dip to happen. No one wants to short it.
If I’m right, then you can tell when it is time to short it. You just need to figure out when no one is left to buy. Easy peasy.
It’s not so easy. But gold’s VIX (GVZ) can help kinda, sorta, maybe. I will need to backtest this, but a rising GVZ and a rising Gold is not good for Gold. Here’s a few cases in point.
Now here is the recent XAUUSD hourly vs GVZ.
Concerning.
I was short gold not too long ago. I made a few attempts. The first was too early, the second was quite timely, but not without some headaches. I have a short bias because I think DOGE are doing a great job, and the US 10yr is going to 3.5%, so unless Gold is hedging a recession (data says that is unwise), then I don’t understand the current price action. But the thing about a bias is, you usually find reasons to hold on to it. I’d welcome an pro-gold argument that changes my view in the comments. Anyway, my job is to give you a heads up not financial advice so usual disclaimers hold.