During the previous week the price of gold made new two years lows with the SPDR Gold ETF (GLD – 118.09) closing at 115.94 last Thursday. The 115 price level seems to be developing as a new support level as it appears GLD likes price levels that end in ‘0’ or ‘5’. The CBOE Gold ETF Volatility Index (GVZ – 27.15) actually dropped almost 15% and the GVZ curve flattened which may be considered a volatility market endorsement of a new support level developing. At minimum this drop in GVZ is an indication that the odds of another near term big drop in the price of gold is coming down.
The oil market has come alive due to political turmoil in Egypt and the fear it may spread throughout the Middle East and disrupt the supply side of the equation. It is interesting (at least to me) that I was having a conversation with an oil trader just over a week ago and commented that it appeared the political risk premium was practically non-existent in the oil markets – so much for that market insight. The price of oil spiked up this week, the US Oil Fund ETF was up about 7% and the CBOE Crude Oil ETF Volatility Index (OVX – 26.74) rose almost 20%. The shape of the OVX curve flipped from contango to backwardation based on this spike in OVX.