uploads///Gold versus VIX indicator

How Gold Is Reacting to Market Unrest


Aug. 1 2017, Updated 9:12 a.m. ET

Gold and market unrest

Gold saw its second straight day of increases on Thursday, July 27, as it hit its six-week high level of $1,266.2 an ounce to close at $1,261.5 per ounce. The call implied volatility in gold also rose to almost 14%. The call implied volatility is a measurement of the changes in the price of an asset given the fluctuations in the asset’s call price.

Gold is often highly correlated with the overall market volatility. The bigger the bounce in market unrest, the higher the price of gold, as it is considered a safe-haven asset. Investors often want to park their money in assets that won’t lose money during market turbulence.

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Volatility index

The above chart shows the comparative price performance of gold and the CBOE Volatility Index (VIXY) (VXZ). As seen during the start of 2016, there’s a clear correlation between gold and volatility. It’s not always certain that gold will react to the unrest in the market, but the chances are that the two may surge together. The Trump administration’s failure to keep up with its election-time promises has also been a reason behind the rise in precious metals.

On Thursday, July 27, most of the mining stocks saw a down day. Major miners like Yamana Gold (AUY), Coeur Mining (CDE), Pan American Silver (PAAS), and Randgold Resources (GOLD) were trading lower than their previous day’s close. These four miners fell 3.1%, 11.2%, 2.8%, and 0.18%, respectively. Combined, these four miners make up about 11.4% of the fluctuations in the VanEck Vectors Gold Miners Fund (GDX).


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