As the EU referendum approaches markets of all shapes and sizes, including commodities are becoming increasingly driven by expectations of what the result will be. Commodity markets such as gold have become correlated with the implied probability based on the betting odds of the UK remaining in the EU. Putting aside the relative macroeconomic merits of Brexit to one side commodity market volatility is likely to remain high throughout this week.
We are now entering a period of no-mans land where there will be no published polls. Having said that many financial institutions have reportedly commissioned their own private surveys of voter intention to help them trade. But even these will not be on the same scale as the exit polls typically carried out on the day of the general election.
There is also a risk that markets and commodities too could be manipulated by placing large bets on the outcome.
Market swings on UK betting lines = high risk of mkt manipulation. Could move $10 trillion in global risk assets with £1 million bet.#Brexit
— Ben Hunt (@EpsilonTheory) June 20, 2016
As the time ticks down to the closing of the polls gamblers may interpret a strong move in the betting markets to remain or leave as actual information on the outcome of the referendum, and then in turn by following the money pushing the odds much lower than they should be. With participants in many commodity markets following betting markets closely this could then have an exaggerated impact on commodity markets. Trade carefully.