How VIX and Gold Could Walk Hand-in-Hand
On a 30-day trailing basis, gold, silver, platinum, and palladium have risen 6.8%, 1.7%, 3.3%, and 5.5%, respectively.
April 17 2017, Published 12:38 p.m. ET
Geopolitical tensions
The past few weeks have been tremendously strong for precious metals. On a 30-day trailing basis, gold, silver, platinum, and palladium have risen 6.8%, 1.7%, 3.3%, and 5.5%, respectively. Safe-haven bids, of course, have been crucial contributors to this rise in metals, but the geopolitical unrest between the US and Syria and the US and North Korea has also led to a surge in these metals.
Investors often park their money in haven assets like gold and silver when the equity market retreats. The below chart depicts of the CBOE Volatility Index (VIX) as compared to gold.
As gold touched a high of $1,291 per ounce on April 14, its call implied volatility also rose to 16.6%. Remember, call implied volatility takes into account changes in an asset’s price due to variations in the price of its call option. The volatility in silver and palladium also rose on the same day.
VIX
The VIX index measures of uncertainty in the market. Volatility markets (VIXY) (VXX) have displayed strange behavior recently, and volatility has been dropping since November 2016. As a result, investors in volatility markets are facing losses. The VIX index sank to its three-year low in January 2017.
Notably, we often see that an increase in volatility can lead to a rise in gold. However, an increase in gold does not necessarily mean a rise in volatility.
The mining shares that tumbled on April 13 along with the increase in precious metals include Primero Mining (PPP), Alacer Gold (ASR), Franco-Nevada (FNV), and B2Gold (BTG). These four stocks have now fallen 2.1%, 7.7%, 0.84%, and 1.4%, respectively.
The mining funds that witnessed a drop on the same day include the Sprott Gold Miners (SGDM) and the VanEck Vectors Gold Miners (GDX). These two funds fell 0.28% and 0.12%, respectively, on April 13.