The wonders of Google auto-suggest, silver vox pop edition:
Which is the perfect lead-in to John Kemp’s excellent take on the generalised commodities sell-off of recent days.
As the Reuters columnist wrote on Thursday:
It will be entertaining to read the thousands of gallons of ink spilled over the next couple of days as journalists and analysts try to rationalise the sudden turn around and identify that one or few factors that were the “tipping point”.
In reality, commodity prices and other assets rise because investors and hedgers anticipate further gains. The market needs a steady stream of net buying orders to keep rising. But at some point the risk of a setback outweighs the prospect of further gains. Long liquidation offsets fresh buying orders, and the process heads into reverse as the length cascades out of the market.
Given the powerful role of expectations and sentiment in building and sustaining coalitions of long (or on occasion short) investors and hedgers, there does not really have to be a rational cause for the market to turn on its tail, if by rational we are looking for a trigger that seems proportionate to the effect caused…
Related link:
Volatile silver – FT Alphaville