Gold’s Revival Drives ETF Volatility to 11-Month High

New York (Oct 16)   As demand for gold rebounds amid the global rout in equities, the metal’s climb to a one-month high may not be the best gauge of the new-found buzz in a market that had been dormant for most of 2014.

Look at the surge in volatility instead.

The Chicago Board Options Exchange Gold ETF Volatility Index, derived from options prices on the SPDR Gold Trust, yesterday reached the highest since November 2013. Futures in New York climbed for three straight days, the longest rally in two months.

More than $1 billion has been added to the value of global exchange-traded products backed by bullion this month. Gold is heading for a second straight weekly gain after Federal Reserve policy makers indicated weaker foreign expansion posed a risk to the U.S. outlook. Prices are rebounding after falling 8.4 percent in the third quarter, a slump driven by concern that U.S. borrowing costs would rise.

“Some people are moving to safety, and people are concerned about the drop in equities and the global economic slowdown,” said Adrian Day, the president of Adrian Day Asset Management in Annapolis, Maryland, which oversees $150 million. “We are seeing a revival in interest in gold as there is a growing sense that the Fed is not going to be tightening in a hurry.”

Gold futures for December delivery climbed 0.9 percent to $1,244.80 an ounce yesterday on the Comex in New York. Prices advanced 2.4 percent last week, the most since June. The metal has rebounded 4.8 percent from this year’s low of $1,183.30 on Oct. 6 to trade at $1,240.18 today.

Gold VIX

The volatility gauge, known as the Gold VIX, rose 11 percent to 20.04 yesterday, the biggest gain since June. The measure touched 26.73, the highest since Nov. 14, 2013, and is rebounding from 11.93 reached on June 18, the lowest since March 2013.

More than $1.5 trillion was wiped from global equity markets last week. Minutes from the Fed’s September meeting released Oct. 8 highlighted growing concern that the strengthening dollar may hurt exports. The policy makers maintained a pledge to keep interest rates low for a “considerable time.”

Last year, gold fell 28 percent as some investors lost faith in the metal as a store of value amid concern that the Fed would taper stimulus and as the dollar strengthened.

Fed Concerns

Stable U.S. consumer costs coupled with the Fed’s latest growth concerns are raising doubts that the central bank will increase interest rates anytime soon. Bullion fell 5.9 percent in September as Standard & Poor’s 500 Index of shares reached an all-time high. The measure fell to the lowest since April yesterday.

The metal climbed 70 percent from December 2008 to June 2011 as the Fed bought debt and held borrowing costs near zero percent in a bid to shore up growth. Prices jumped to an all-time high of $1,923.70 on Sept. 6, 2011.

“Some people are returning to gold as they want to hedge against a global slowdown,” said George Gero, a New York-based precious-metals strategist who helps manage $500 million at RBC Capital Markets LLC.

Source: Bloomberg