This Week in Gold and Oil Volatility – 3/7/2014

I often get questions from old school traders about VIX being an alternative to owning gold in times of crisis.  Before VIX options and futures were available the asset that would run up during periods of volatility was often gold.  Monday was one of those days where Gold reacted by moving to the upside with the SPDR Gold Shares ETF (GLD – 129.09) gapping open by about 2%.  The reaction out of the CBOE Gold Volatility Index was very similar with an opening level almost 5% higher than the Friday close.  This was just another great example of how GVZ will spike up when the price of gold has a big move higher or lower.  By the end of the week things appeared to have calmed down in the political arena and the wild action in the price of gold resulted in GVZ actually being lower on the week.

The price of oil also got a boost earlier in the week and the CBOE Crude Oil Volatility Index (OVX – 20.01) quickly ran up to 21.00.  By the end of the week there was still some heightened fear which can be translated as a new ‘risk premium’ entering the pricing of oil.  The result was OVX up almost 7% for the week and a parallel shift in the OVX curve with the March OVX future price actually climbing more than the spot index.