This Week in Gold and Oil Volatility

The SPDR Gold Shares ETF (GLD – 166.97) broke down and out of the tight range from the last couple of weeks. This break of support did not get too much attention from GVZ as the index closed lower on the week as well. It appears market participants do not see the move lower in GLD as the beginning of some sort of large price move so there was no bidding up of option prices. Along the curve there was a very parallel move which indicates GLD traders don’t see much in the way of big moves over the next few months. Something to keep in mind – even if you do not trade GVZ derivatives, the low GVZ means options are cheap – it you have an opinion on the direction of the price of gold, the option market is as inexpensive as it has been in years.

Oil futures traded down to around 90 and took the OVX down with it. OVX was down over 5% on the week, but the futures did not follow suit. It appears the markets expect more volatility out of the price of oil or are at least prepared for it over the next few months as the curve is pretty steep. This is just a good indication of the market continuing to price in a bit of an extra risk premium due to potential geopolitical issues that may arise in the Middle East.