Gold Volatility Beats U.S. Stocks and May Last: Chart of the Day

Investors may be right to show more concern about future price swings in gold than they do for U.S. stocks, according to Nicholas Colas, ConvergEx Group’s chief market strategist.

As the CHART OF THE DAY shows, the Chicago Board Options Exchange Gold ETF Volatility Index more than doubled on April 12 and April 15 as the precious metal had its biggest loss in three decades. The gauge is tied to the SPDR Gold Trust, an exchange-traded fund, and has been calculated since June 2008.

A comparison between the gold indicator and the CBOE Volatility Index, a stock gauge known as the VIX, appears in the top panel. Both indicators are derived from option prices. The Gold ETF index’s close of 34.48 on April 15 surpassed the VIX’s value by the widest margin since September 2008, in the midst of a financial crisis, as the bottom panel shows.

“You will see higher gold volatility now versus the past year,” Colas wrote yesterday in an e-mail. “The major driver will be persistent chatter that some European country will be forced to sell some or all of their reserves” to raise funds for bank bailouts, the New York-based strategist wrote.

The two-day plunge in gold lifted the ETF-based volatility index to its highest reading since October 2011 -- a time when the VIX was higher, in keeping with a pattern during the past five years.

On average, the so-called gold VIX closed 1.51 points lower than the VIX from the start of calculations through yesterday. Its April 15 close was 17.21 points higher. The gap may narrow in the next month as the gold VIX declines more than its stock-market counterpart, Colas wrote.

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