Gold ETF Volatility Shoots Upward

Gold ETF volatility jumped on July 23rd and has been steadily rising since then. GVZ, also called the gold VIX, is the CBOE Gold ETF Volatility Index. It is tied to the largest gold ETF in the world, the SPDR Gold Trust (GLD). GVZ measures the market’s expectations of the volatility of gold prices, via GLD, over the next 30 days. This index uses the same methodology as the S&P 500 VIX index, often referred to as the “fear index.” In the chart from the CBOE website below, note that GVZ had been as low as 16.5 during the past week but has now shot above the 19.5 level.

The Gold ETF VIX Index (GVZ) is on a steady climb upward.

GVZ has been higher than the 25 level twice this year as investors expected a QE3 announcement in early June and July but did not receive it. Here’s the six month chart of GVZ for comparison purposes. Although the current rise in gold ETF volatility has not hit the extreme range, it certainly has the momentum to do so.

GVZ has seen highs above 25 this year. Could the current trend equal those highs?

Physical gold ETF funds been on the rise due to a variety of negative pieces of news and data. Economic numbers out of Europe showing a slow down, comments by Treasury Secretary Tim Geithner that Europe is the biggest threat to the U.S. economy and an escalation in the Spanish debt crisis have prompted investors to bid up gold. Here’s the one week performance snapshot from GoldETFs.biz  of all physical gold ETF trusts listed in the United States.

Gold ETF trusts are positive over the last week.

Investors sentiment is growing that finance officials in a variety of important countries and regions are likely to introduce more liquidity to the financial system in short order. This would be an especially bullish development for gold ETF investors. To see a list of all gold ETF products visit the gold ETF list.

Gold benefits when liquidity is introduced into the system for two reasons. First more supply of paper money devalues the currency. Gold, primarily priced in U.S. Dollars, should therefore be worth more dollars. Secondly more liquidity means there is additional money searching for investment opportunities. Gold becomes especially attractive given its scarcity, recognized value across the globe and ability to hedge against further currency  devaluation.

Going forward gold ETF investors will be anxiously watching the Federal Reserve, the EU and economic data. In a surprising twist in the trend this year for bad economic news to negatively impact gold prices, gold investors are now likely to benefit from bad economic news in the U.S. and Europe.

Read More: Gold ETF Volatility Shoots Upward at GoldETFs.biz

 

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