GOLD VOLATILITY vs APRIL GOLD FUTURES - dailys (click on image and max window)
If volatility is what you like - gold probably won’t disappoint. Gold’s volatility index has been kept in check through most of this run. There were a couple of high strikes recently around 29-30 on the $GVZ CBOE gold volatility index (see the left chart).
The chart on the right is April 2010 Gold Futures over a slightly longer period. The $GVZ index is a new VOL measure and this is all the data that is currently available unfortunately. Still compared to crude, $SPX or $NDX volatility indexes gold has been pretty tame as of late.
It’s a rumor of course, but I have it from a good source that selling gold VOL was a great trade for Goldman the first half of this year. I wasn’t told when the trade was put on, but only that it did very well the first half of the year. Since then, they’ve supposedly closed these positions in late summer. I don’t know if this is true. I do know Goldman has recently turn quite bullish on gold.
We saw gold VOL spike up a couple of weeks after this most recent impulse leg started - around the beginning of September. We measure these types of legs from the last touch of a major consolidation pattern before price reverses - ours being the bottom of the triangle that started the big explosion in gold VOL in early September (see starting fib). Recently with the cascade in gold prices from new highs, we have again seen gold VOL challenge and even make new highs the past four days. The first time gold VOL spiked, buyers came for calls. More recently, they came for put protection. Elevated gold volatility means you can expect the daily price range to expand.
You can see how we closed an important gap in the gold futures today. The same gap showed up on the weekly chart of GLD. There are now - no more open gaps in the GLD weekly chart (not shown) since the impulse wave started. We’ve also completed a 38% retracement of the initial impulse wave. The 50 day moving average is in blue and we haven’t even manage to hit it yet; it’s currently at about 1100. Gold hasn’t seen its 50 dma since the impulse wave started! We can’t even rule out a backtest of the 1070 level - lots of things are possible.
There is decent support below and significant pent up demand waiting for some sort of overbought correction. You can see the ROC on gold futures is back to levels not seen for a long time. We’re still near overbought on the weekly RSI, but the daily is back to about 50. It’s impossible to say at what point serious buyers will show up. We believe gold will find support relatively soon and begin a small consolidation halfway pattern - the type of which we experienced in both time and price during the two previous impulse moves to new highs.
It seems gold and its volatility are just beginning to heat up. We live in interesting times.
