After what the bears are calling a dead cat bounce and the bulls are calling a rebound Gold was under a little pressure this past week. GLD dropped 1.75% and the implied volatility of GLD options as measured by the GVZ rose from 20.37 to 23.95, a gain of over 17.5%. Both bullish and bearish sentiment can have an upward influence on GVZ based on the nature of that market. The volatility of gold has its own idiosyncrasies, but it appears to action that pushed GVZ higher is buying on the put side. A quick survey of headlines and tweets yield a more bearish attitude about the yellow metal.
I am all about quantitative and not qualitative analysis. What I did was check out the volatility skew of GLD options that expire on June 7th which is 28 days from May 10th and pretty darn close to the 30 day implied volatility that is indicated by GVZ. Note the much higher level of implied volatility for the strikes below the GLD close. There is a lot more paying up for a move to the downside than to the upside. Bulls can claim the fear is a good contrary bullish indicator. The bears can point to this and say the ‘smart money’ is betting for the bottom to fall out of the gold market (again).
In the year and a half that I have been writing on Gold and Oil volatility I have never seen such a dichotomy between the two markets. They both have some macro similarities and move in sync when investors are bullish or bearish on the overall economy. This past week Gold dumped and Oil pumped higher. The result for OVX was a drop of about 5%. The whole curve moved in a pretty parallel fashion.