Could Volatility Play a Major Role on Gold?
Gold and VIX
Overall volatility in the market is a major contributor to the changes in the price of gold and other precious metals like silver, platinum, and palladium. Lately, the most important driver for gold has been the overall market sentiment. Market volatility often gives a positive kick to gold. Precious metals’ safe-haven appeal comes into play when investors look for safety during volatile times. In the following chart, volatility is depicted by the CBOE Volatility Index (or VIX).
Although gold and volatility are expected to walk hand-in-hand most of the time, they can also deviate—as you can see in the following chart.
Interested in NGD? Don't miss the next report.
Receive e-mail alerts for new research on NGD
Funds and miners impacted
A negative trend seems to have gripped gold and precious metal funds like the SPDR Gold Shares (GLD) and the iShares Silver Trust (SLV). Although they still maintain a year-to-date gain, the past few months have been choppy and prices fell drastically.
Recently, the risk sentiment in markets isn’t for gold. The overall volatility fell comparatively. As we mentioned earlier, a fall in volatility may not always be a reason for a rise. The most challenging part of investing in precious metals is analyzing which of the global parameters are playing on the metals. At different points, varying factors could have the upper hand in controlling the fluctuations in gold and other metal prices.