Schaeffer's Trading Floor Blog

Is Gold Volatility Sending the VIX Higher?

How the spike in gold volatility is having a spillover effect

by 4/18/2013 7:50 AM
Stocks quoted in this article:

If you're of the belief that volatility ripples across asset classes, then you really have to pause and take serious note of this lift in volatility in gold.

Here's a chart of 30-day implied volatility and 20-day realized volatility for gold over the last three months:

Chart of gold implied volatility
Chart courtesy of IVolatility

Yes, that's about a 120% lift over the course of two sessions -- pretty remarkable stuff. The spike marked an 18-month high in gold volatility and basically the second-highest level of gold volatility since the global volatility spike in everything in 2008.

It pretty much dwarfs the 43% pop in the CBOE Market Volatility Index (INDEXCBOE:VIX), which was historically impressive in its own right.

And for what it's worth, the ratio of gold volatility to stock volatility hit its highest mark in the five-plus years we've had listed options on the SPDR Gold Trust (ETF) (NYSEARCA:GLD). Here's the CBOE Gold Volatility Index (INDEXCBOE:GVZ) versus the VIX:

Relative strength of gold volatility index versus the VIX
Chart courtesy of TD Ameritrade

Now there's no particular history of gold volatility leading stock volatility to the moon. But it is clearly having some spillover effect. At this point, gold volatility has apparently passed the baton to good-ole stock volatility.

So one bit of advice -- ignore pundits on TV who say the VIX is still only 18, or 19, or whatever. You have to relate volatility to the here-and-now. 10-day realized volatility has doubled in the past few days, from 10 to around 20. 30-day implied volatility (essentially the VIX) has lifted about 50% this week. That's a pretty sizable move, no matter how you slice it. Throw in the fact that it's expiration week, and you have a lot of whipsawed options shorts scrambling to defend their exploding positions.

Disclaimer: The views represented on this blog are those of the individual author only, and do not necessarily represent the views of Schaeffer's Investment Research.


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