The CBOE Gold ETF Volatility Index (GVZ) is based on the pricing of options on the SPDR Gold Shares ETF (GLD – 156.72). GLD was down slightly on the week, while GVZ dropped over 9%. This dramatic drop in GVZ may be based on the continued perception that there is very little geo political or macro-economic event risk over the near term. The GVZ futures curve shifted in an interesting manner as the August contract dropped in line with the index. Since we are now two trading days away from August expiration, the August contract should converge with the index. Looking farther out on the curve, the September, October, and November futures contracts moved down, but held up at a pretty significant premium to the index. The futures markets continue to price in extra risk of a big gold price move over the next few months.
The price of oil climbed last week and the result was also high volatility as indicated by options that trade on oil. For both gold and oil, volatility may rise with the prices rise. For those that follow equity market volatility this is a bit counter intuitive. OVX moved up with the interesting piece of the puzzle being even higher futures prices over the course of the week. The curve shifted higher which indicates the market is expecting some big price moves (higher or lower or both) in oil over the next few months.