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Gold Price Volatility Declines To Record Low On Bullish Sentiment

Commodities / Gold and Silver 2012 Nov 21, 2012 - 09:05 AM GMT

By: GoldCore

Commodities

Today’s AM fix was USD 1,726.75, EUR 1,350.71, and GBP 1,085.05 per ounce.
Yesterday’s AM fix was USD 1,734.00, EUR 1,354.05, and GBP 1,089.06 per ounce.

Silver is trading at $33.07/oz, €25.94/oz and £20.84/oz. Platinum is trading at $1,576.50/oz, palladium at $633.80/oz and rhodium at $1,050/oz.


Gold fell $4.40 or 0.25% in New York yesterday and closed at $1,727.20. Silver hit a daily low of $32.86, then recovered higher at the close and finished with a gain of 0.12%.

Gold ETF VIX Index

Gold inched lower on Wednesday despite Greece's lenders being unable to agree on a debt deal, but support for bullion remains due to the very uncertain economic backdrop and global central bank’s loose monetary policy stance.

The Japanese yen has fallen again versus gold after Japan logged its 4th straight trade deficit ($6.7 billion) in October leading to fears of another recession and more money printing in Japan.

Japan’s figures show its worst trade deficit for October in nearly 30 years, renewing September’s record, with declining exports to China due to the territorial dispute, and slower demand from debt-stricken Europe.

On Tuesday the BOJ announced it has no plans for further stimulus measures, but experts suppose that weak figures would force them to change their mind.

The BoJ’s bond buying bazooka now totals a staggering ¥91-trillion or $1.1 trillion.

Losses were limited by continuous fighting in the Middle East which buoys safe haven sentiment.

US Federal Reserve Chairman Ben Bernanke said yesterday that the central bank does not have the tools to offset damage caused by the fiscal cliff if the Congress fails to reach a consensus.

European finance ministers, the ECB and the IMF cannot agree on a bailout to make the Greek’s public debt which is 189% of GDP down to 120%, and they will convene again on Monday.

If Greece is unable to be “put back together again” what faith will there be in these creditors helping other Eurozone countries out of the deepening recession?

The World Gold Council reported that China's consumer physical gold demand increased 22% to 176.8 tonnes from Q2 to Q3.

The US Congressional calendar days are running out and the looming fiscal cliff is growing.

Cross Currency Table – (Bloomberg)

Gold volatility as represented by the cost of options that protect against losses in gold and silver has slumped to a record low, on the increasing belief that slower economic growth will attract buyers and spur central bank actions that accelerate inflation.

The Chicago Board Options Exchange Gold ETF Volatility Index, which tracks the cost of SPDR Gold Trust options, plunged 42% this year and last week reached 13.28, the lowest in records starting in 2008.

The CBOE Silver ETF Volatility Index, a measure of IShares Silver Trust derivative prices, is down 50 percent in 2012 and touched 22.76 yesterday, the lowest in data going back 19 months.

The calculation of the CBOE Gold ETF Volatility Index ('Gold VIX') is based on the well-known CBOE VIX methodology applied to options on the GLD SPDR Trust. This is a real-time market estimate of the expected 30 day volatility of the gold ETF.

U.S. House Minority Leader Nancy Pelosi said this week that any budget agreement to avert the so-called fiscal cliff must raise rates on the highest earners. A Nov. 15 report showed the euro-area economy entered recession in the third quarter, while violence erupted between Israel and Palestinian groups.

‘Substantial Threat’

Failure to avoid the so-called fiscal cliff would pose a “substantial threat” to the economic recovery, Federal Reserve Chairman Ben S. Bernanke said yesterday. Bernanke didn’t explicitly address what the Fed might do after the December expiration of Operation Twist, in which the central bank is purchasing about $45 billion a month of longer-term Treasury securities as it replaces the same amount of short-term debt on its balance sheet.

U.S. gross domestic product would contract by as much as 0.5 percent next year if lawmakers fail to reach a compromise on $607 billion of automatic tax increases and spending cuts, the Congressional Budget Office has said.

The Fed said on Sept. 13 it would buy mortgage-backed securities, adding to the $2.3 trillion of stimulus that the central bank committed to spur growth. The week before, the European Central Bank announced plans to buy an unlimited amount of bonds of the most indebted nations in the region to suppress borrowing costs. The Bank of Japan raised its asset-purchase program for the second time in two months on Oct. 30.

Gold Prices/Fixes/Rates/Vols – (Bloomberg)

Gold VIX

The gold VIX slid 0.7% to 13.52 yesterday, as the volatility gauge for silver decreased 4.7% to 22.76. The VIX lost 1.1 percent to 15.08, a one-month low. Europe’s VStoxx Index, a measure of Euro Stoxx 50 Index option prices, added 0.1 percent to 18.79 at 9:34 a.m. in Frankfurt today.

The ratio of outstanding calls to buy the silver fund versus puts to sell rose to 2.32-to-1 on Nov. 16, data compiled by Bloomberg show. That was the highest level since March 2009. Nine of the 10 most-owned options on the fund were bullish. January $36 calls, with an exercise price 12 percent above yesterday’s close, along with January $40 calls and January $50 calls had most contracts.

For the gold fund, there are almost twice as many calls as puts, with 2.27 million bullish options outstanding and 1.14 million bearish contracts at the end of last week, the data show. All nine most-owned options were bullish, with December $170 calls, betting on a 1.6 percent increase, and December $190 calls having the largest open interest, data compiled by Bloomberg show.

“Investors may be rolling their bets in anticipation of additional monetary easing by central banks,” Max Breier, a senior volatility trader at BMO Capital Markets Corp. in New York, said in a Nov. 16 interview. “Operation Twist will be ending soon and there is speculation that the Fed will announce a new program to buy U.S. Treasuries. “

“The fun never ends” Breier told Bloomberg.

The ‘fun’ in the gold and silver markets is only beginning and investors and savers need to have allocations to both precious metals as financial insurance against significant geopolitical, macroeconomic, systemic and monetary risk.

Low volatility likely represents the calm before the coming storm in the precious metals which should lead to further price gains in 2013.

Currency Ranked Returns – (Bloomberg)


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This update can be found on the GoldCore blog here.

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Mark O'Byrne
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Comments

pawansonic
22 Nov 12, 00:55
Gold

U.S. COMEX gold futures for Dec distribution resolved down $10.80 at $1,723.60 an ounces, with dealing amount about 30 percent below its 250 day average.


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