This Week in Gold and Oil Volatility

I received a question from a bright college student this past week about how gold and oil prices react to geopolitical situations or the economic outlook. My response was it depends (irritating answer huh?), but you need to focus on news and see how these markets react. From what I see these days gold and oil are reacting to the economy more than saber rattling. Of course that can always change depending on the volume of the saber…

The price of gold had a good week with GLD moving up 2.25%. Coincidentally GVZ rose on the week after touching all-time lows closing the week out at 15.48. A quick glance at GLD option trading on Friday shows more December and January call trading that put volume so anecdotally it looks like this GVZ push higher is based on some call buying. Together it appears to me that option traders may be betting on a breakout to the upside for GLD in the near term. Our friends over at Investor’s Business Daily put a confirmed breakout price for GLD at 174.17 so that is a GLD level I’m keeping an eye on as well.

Oil prices were higher last week as well, but OVX went in the opposite direction closing below 30.00 at 29.49 on the week. For some times there seems to have been a war risk premium in the price of oil. With the recent flare up and drop off in violence along with an uptick in the economic outlook implied volatility for oil options dropped off a bit.