6th February 2026
We generally try to resist the temptation to add to the voluminous commentary that explains why significant moves in financial markets have just happened. Since the precious metals’ moves on Friday, you will no doubt have been able to read lots about “short gamma”, timing issues with the NAV pricing of leveraged ETFs, the Shanghai silver premium and whether or not that’s due to VAT, margin calls, technical levels and on and on. Curiously, less is written about these things in the run up to these events….. We do read this stuff and try to learn what is going on. Some people are great at explaining it. But understanding what just happened during these flash crashes very rarely changes the way we invest. And hardly anyone is clever enough to trade ahead of them – at least consistently.
We said something similar after the Japanese flash crash in August 2024 (see here).
But what one cannot ignore is that instances of sudden moves in financial assets (or episodic non-trending bouts of volatility) are becoming more frequent. The words “historic” and “unprecedented” are used alarmingly often. What happened in August 2024 in Japan, and last week in the precious metals markets, are an example of the “cost” of progress. Ever greater numbers of people can participate in ever more complex financial instruments and an ever-greater number of assets. Often this is a good thing. But this dynamic introduces a fragility into the system – specifically the phenomenon of self-reinforcing market behaviour that amplifies what would otherwise have been much smaller movements.
We have long held direct exposure to gold bullion and our exposure to gold equities is via a superbly-managed fund run out of Switzerland. We don’t own direct exposure to silver bullion (leaving that allocation to the genuine expert!). I won’t rehearse why we’ve been bullish (and remain so) – we outlined most of the arguments in this Crescendo.
We manage our exposure to the precious metals complex quite uniquely to how we manage other positions. Recognising: 1) our own natural emotional biases, 2) the variability in volatility of the sector (you can follow the volatility of gold bullion and gold equities via the GVX and VXGDX indices), and 3) that we don’t want the allocation to gold to become too big a driver of overall portfolio returns and risk, we target a percentage weighting to the complex for each of our funds, and either add or trim when the weighting deviates a certain amount away from that weight. Thus, we flukily trimmed exposures on Thursday 29th January – but still maintained our healthy target weights. Thankfully the manager of our gold mining fund had recently been turning more defensive. So all-in-all, we feel that our process has stood up to this latest test well. Illustrating the benefits of diversification, our funds’ prices have not adopted the volatility displayed by the precious metals complex.
But more tests await us. The financialisation and democratisation of so many asset classes, as well as easy access to leverage or products that offer leverage, mean that another bout of episodic non-trending extreme volatility will recur – and who knows when or where? The important thing is to ensure our portfolios are never overly-exposed to any one area; we also understand that these episodes might not signify much more than the over-financialisation of our asset markets.
Ben Conway – Head of Fund Management
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