In 2014 the price of Gold did not have any of the headline grabbing moves like those that occurred in 2013. The SPDR Gold Shares ETF (GLD – 113.58) finished the year down a little over 2% and was down 1.4% on the last day of the year. If we had taken New Year’s Eve off GLD was have been practically unchanged on the year. The chart below shows the daily closing prices for GLD and the CBOE Gold ETF Volatility Index (GVZ – 20.08) for this past year.
If it were not for the fourth quarter this would be what I call a Seinfeld blog – about pretty much nothing. The increased implied volatility that occurred in GLD option trading to end the year was more about other markets than gold. A huge drop in the price of oil and increased global equity market volatility greatly influenced volatility in other sectors that did not experience the same sort of price changes. The gold market in the fourth quarter is a great example of how volatility in one market sector may influence the volatility of options in a loosely related market.
The table below will put GVZ action for 2014 in some context. We got a seven standard deviation move in the price of gold in 2013 and a break of several support levels which pushed GVZ to the mid-30’s. 2014 was a very range bound year for GLD and the result was the lowest average implied volatility over the almost seven year history that CBOE has for GVZ.
One other thing that stands out on this table is the low for GVZ in 2014. The price action for GLD was range bound and VIX put in a post 2008 low this past year. One would guess that GVZ would follow suit. However, the low in 2014 was higher than the 2012 and 2013 lows. What I am starting to learn about volatility indexes is that it can take years to reach a new low after some sort of price shock. In the case of GVZ the memory of GLD dropping dramatically in April 2013 is fresh enough to keep traders on edge, even in a very quiet year for the underlying market.
For more insight and thoughts about 2014 join me for a 2014 volatility wrap up webcast this coming Monday (1/5/15) at noon Chicago time – register at www.cboe.com/webcasts