How Gold Relates to April’s Market Volatility
The volatility in world markets is one of the most significant contributors to the variations seen in precious metals. The volatility index may finally stop being stagnant, as it moved upward after the failure of President Trump’s healthcare bill.
The volatility index (VXZ), CBOE Volatility Index (or VIX), has been trading close to 12% for the past few months. However, it finally got close to 16% during the middle of April. On April 26, after the first round of France’s presidential election had concluded, volatility once again dropped to ~10.9%
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As shown in the chart above, gold and volatility are often seen moving in tandem. However, the two can also deviate from each other, which is what we’ve seen most recently. Despite the falling volatility in the markets, gold (GLD) and silver (SLV) have seen price upswings of 10.3% and 9.7%, respectively.
Gold, VIX, and risk appetite
Increased unrest in markets calls for safe-haven demands and as a result, precious metals perform better. At the same time, monetary policies around the world stopped tightening, and gold got a boost. Remember, precious metals often perform well amid monetary expansion.
However, the most important driver for gold lately has been overall market sentiment and global risk appetite. Market volatility often gives a positive kick to gold, and precious metals’ safe-haven appeal comes into play when investors look for safety during volatile times.