Why Has the Volatility in Gold Reduced?



Volatility reduced

Since precious metals are currently slow paced, trading on the New York Commodity Exchange and COMEX fell about 45%. The open interest in the futures contracts also fell for gold and silver. The 60-day historical volatility has fallen to the lowest level in 13 months.

The call-implied volatility in gold stood close to 15% on September 20, 2016, while silver was at 23.9%. The call-implied volatility measures the changes in the price of an asset with respect to the changes in the price of the call option. The volatility in often higher during turbulent times in the markets and also when the economic crisis is at its peak.

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Trading range

Gold futures for December expiration maintained a narrow trading range on September 20—swinging between the day’s low and the high price of $1,315.2 and $1,321.1 per ounce. The narrow trading range often suggests a retrieval sentiment from precious metals.

Since the Fed’s verdict is just around the corner, investors seem to be flabbergasted with the plausible direction gold and other precious could take. Traders only priced a 22% chance that the Fed would hike rates today. Such a surprise move could trigger a sell-off of the metals.

Miners and funds

Gold and silver-based funds such as the iShares Gold Trust (IAU) and the iShares Silver Trust (SLV) also lost their price during the past month. These two funds fell 2% and 0.41%, respectively, on a 30-day trailing basis.

The mining shares that also suffered during the past month due to Fed fear include New Gold (NGD), Royal Gold (RGLD), First Majestic Silver (AG), and B2Gold (BTG). These equities fell 20%, 6.7%, 23.4%, and 14.1%, respectively. Together, these miners make up about 9% of the fluctuations in the VanEck Vectors Gold Miners Fund (GDX).


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