The Price of Gold and Fear

The price of gold is getting a ton of press these days with some calling for the spot price to break $1000 an ounce and others calling a bottom at current levels.  When there is extra chatter like this about a certain market and divergent views I like to see what the market may be saying.  In the case of the price of gold I like to consult the CBOE Gold ETF Volatility Index (GVZ).  Checking on a chart comparing the price of gold as represented by the SPDR Gold Shares ETF (GLD) and GVZ something pops out at me.

It is quickly becoming a distant memory, but on April 15th the price of gold was off tremendously on the day losing 8.7% in a single day and having dropped 13% over the course of two trading days.  GVZ reacted as an index that reacts to fear in the market would be expected to react.  It climbed 61% in a single day and 125% over the two trading day period where GLD had lost 13%.  The closing price for GVZ on April 15th was 34.48.

Since mid-April GLD has continued a slide, in a little more orderly fashion.  However, despite the drop in GLD, GVZ has been unable to make a new high.  That could be considered a good sign for gold bulls.  The recent low for GLD was on June 27th where the ETF closed at 115.94, but GVZ did not manage to put in a new high.  This divergence shows that despite GLD continuing to make new lows, the volatility market is not seeing renewed fear as far as selling pressure.

The 115.94 level for GLD is going to be a focus for traders.  In addition to watching that price, watch GVZ and 34.48.  GVZ making a new high could signal a new round of panic selling in GLD.

GVZ GLD