This Week in Gold and Oil Volatility – 9/12/2014

The price of oil came under pressure last week with the US Oil Fund ETF (USO – 34.37) losing about 1.5%. OVX can rise when the price of oil breaks what appears to be resistance or support, in this case OVX rose based on a breakdown in oil prices.


Gold also broke what appeared to be pretty strong support at 120.00 for the Gold ETF (GLD – 118.38). The next stop is a couple of points lower in the 116 range which is the lowest we have seen GLD in years.  With GLD breaking out of the 120.00 – 130.00 range that has dominated most of 2014 GVZ reacted with a pretty dramatic move to the upside.


The curves below tell two stories. OVX shifted in a very parallel manner and the flat curve can be taken as there being a lot of uncertainty as to what is next.  The uncertainty would be a tug of war between a price shocks being on the horizon (possibly to the downside) or oil prices having reached a new equilibrium price range.  GVZ on the other hand shows that traders anticipate potential firming of prices or at least no new break down in GLD which would result in lower implied volatility based on GLD option prices.