09.29.2011
By Terry Flanagan

Meddling Volatility

Investors playing in the commodities markets should expect “considerable volatility,” according to asset manager.

For many market participants, the “gold” standard was used as a consolation for investors in shaky markets. Gold, along with other precious metals, have historically been negatively correlated to the equities market—a safe haven.

Yet, on September 26, the price of gold suffered a dramatic fall, losing $131 from its high in Asia at $1,663 before slumping to a low of $1,532 just ahead of the London opening. The entire move amounted to a fall of 7.5 percent.

The volatility experienced in the commodities is deemed unusual by many market participants—in addition to gold moves, spot silver prices, specifically, has dropped 45 percent since its peak in April of this year.

The metal may be prone to vulnerability on worries about economic growth and the lack of silver industrial uses.  Macroeconomic woes are at the root of this commodity volatility, according to Dave Kavanagh, president and portfolio manager of the Grant Park Managed Futures Strategy Fund at Grant Park Funds, based in Chicago.

“I would categorize investor sentiment as very, very nervous,” said Kavanagh. “The markets, at this point are being driven more from macroeconomic events here (the U.S.) and in Europe, rather than from a fundamental standpoint, oil being a case in point.”

Kavanagh warned long-term, purely fundamental investors “with a very long term point of view,” can expect “to be sitting through a considerable amount of volatility.”

Grand Park Funds “establishes positions based on sustained price trends,” according to Kavanagh.

“Should prices continue to go lower, Grant Park’s view of the markets will be expressed with short positions in those falling commodities,” Kavanagh noted.

The firm has $1 billion under management and specializes in actively trading and investing managed futures.

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