Historic Low In Gold VIX Points To Higher Prices - Analysts
(Kitco News) - With gold’s new found new momentum following the Federal Reserve’s “dovish rate hike,” some analyst see limited downside risk as volatility in the marketplace remains near historic lows.
While off its all-time lows seen Friday, the Gold Volatility Index ($GVZ), which measures implied volatility calculated through call and put options, is starting the new trading week at extreme levels, last trading at 11.3. At the same time April Comex gold futures last traded at $1,232.80 an ounce, up 0.21% on the day.
“I’m surprised that this isn’t getting a lot more attention in the marketplace because to me this is a very bullish sign for gold,” said Maxwell Gold, director of investment strategy at ETF Securities.
Gold added that because of the low gold VIX and high open interest, he sees the potential for more upside risk for gold in the near-term. He added that the historical average of the Gold VIX is around 18.
“I think gold’s current low volatility makes it an attractive asset for investors looking for an alternative risk hedge,” he said. “You don’t want to be in the market when volatility is high,”
George Gero, managing director with RBC Wealth Management, agreed that the low Gold VIX levels implies more upside risk for the yellow metal. However he added that gold prices are hovering in no man’s land.
“I think when we get to options expiration you are going to see that neither the longs nor the shorts are going to win. Most calls have a strike above $1,250 and most puts are at below $1,200.”
Gero added that for gold to attractive more long-term investor interest prices need to push above $1.260 an ounce.
“A lot of asset allocators have been burned by jumping in before $1.250 and they are a little shy now,” he said.
Although the Federal Reserve raised interest rates by 25 basis-points last week analysts note that gold is benefiting from the central bank’s relatively unchanged outlook for three rate hikes in 2017.
Analysts have added that gold will continue to benefit as inflation is forecasted to remain above the Federal Reserve’s interest rate projections, keep real rates in negative territory and reducing the precious metal’s opportunity costs.