This Week in Gold and Oil Volatility

The price of gold as measured by the SPDR Gold Shares (GLD – 157.18) was in a tight range this past week, rising about 1% when all was said and done. When a market, exchange traded fund, or stock does not move around too much we can say the realized volatility has been pretty low. That combined with no near term catalysts can result in low option prices as measure by implied volatility. This is the environment we have right now in GVZ as Friday’s close at 16.16 is the lowest level in 2012. GVZ futures prices dropped more than the index this past week which indicates over the intermediate term there is no anticipation of a large move in the price of gold. Checking the liquidity on GVZ futures, the open interest across the four active contracts is approaching 1000 contracts as traders begin to become aware of the merits of gold volatility trading.

The United States Oil Fund (USO – 34.85) rose a bit more than GLD gaining 2.3% last week. All of this gain occurred over Monday and Tuesday with the remainder of the week being quiet as a church mouse. This lack of price action took the OVX down to a relatively low close of 30.59 on the week. The drop in OVX was almost 8% and the futures all lost value as well, but not quite at the magnitude of the index. OVX is currently at the highest level of all six tradable volatility indexes. Finally, open interest in the OVX arena is growing and has reached over 800 contracts.