Gold Traders Have Nothing to Fear


The Market's Measure

In times like these, everybody’s eying VIX, the oft-tagged “fear index.” VIX, divined from the volatility embedded in SP 500 index options traded on the Chicago Board Options Exchange (CBOE), represents the expected movement in the underlying benchmark over the upcoming 30-day period.

Historically, VIX hangs out at the 20 level, meaning an annualized volatility of 20 percent. Upward spikes in the metric signal option traders’ “padding” of premiums to cover the risk of anticipated price variations. VIX, for example, spiked above 40 in late August as China-related fears gripped the market. VIX, as a testament to mean reversion, has been drifting downward ever since.

VIX isn’t the only fear index, though. The CBOE also calculates an indicator for the gold market. The CBOE Gold ETF Volatility Index, or GVZ, applies the VIX methodology to options on SPDR Gold Shares (NYSE Arca: GLD).

GVZ, like VIX, has averaged a reading of 20 or so over the past several years, but with a lot less, um, volatility. GVZ spikes tend to be smaller, but nonetheless offer insight into traders’ thinking. Big moves, like the 2008 run-up signaled a bullish turning point for GLD, just as a smaller 2001 advance that heralded GLD’s eventual weakening, can be seen easily on the chart; minor variances require monitoring GVZ’s 10-day moving average.



Gold caught a bid last Thursday, thrusting GLD above the $110 level for the first time since July. Volatility traders took note of a concomitant flash pick-up in GVZ. Spotting a 10 percent excursion above GVZ’s moving average, punters sold GLD down for a one-day gain of nearly two percent.

Two percent may not sound like much, but these opportunities crop up, on average, once every fifteen  trading days. A few trades like these and, to paraphrase Everett Dirksen, you’re talking about real money.      


Brad Zigler is REP./WealthManagement’s Alternative Investments Editor. Previously, he was the head of marketing, research and education for the Pacific Exchange’s (now NYSE Arca) option market and the iShares complex of exchange traded funds.

Discuss this Article 1

“Big moves, like the 2008 run-up signaled a bullish turning point for GLD, just as a smaller 2001 advance that heralded GLD’s eventual weakening”

Speaking of GLD, Anyone know why there is a clause in the GLD prospectus that states GLD has no right to audit subcustodial gold holdings? Why would the organizations behind GLD forfeit this right and create such a glaring audit loophole? I have not heard a single good reason for the existence of this loophole thus far. It also doesn’t help that GLD claims to be fully backed by physical gold bullion but yet it refuses to give retail investors the right to redeem for any of these ‘claimed’ gold bullion. There are a number of other red flags as well from what I’m reading:

“The GLD prospectus fails to specify around how much of GLD’s gold is insured but it does give you this clause “The Custodian maintains insurance with regard to its business on such terms and conditions as it considers appropriate which does not cover the full amount of gold held in custody.” As I wanted clarification on this subject, I called GLD’s info line. The GLD representative acted as if he didn’t know and said they were just the “marketing agent” for GLD. What kind of marketing agent doesn’t know such basic information about a product they are marketing? It seems like they are deliberately hiding information from investors. These representatives behind GLD sure doesn’t seem to be the most honest types. Anyone share a similar experience? Thoughts?

I also recall there was a well documented visit by CNBC’s Bob Pisani to GLD’s vault. This visit was organized by the management behind GLD to prove the existence of GLD’s physical. However, the gold bar held up by Mr. Pisani had the serial number ZJ6752 which did not show up on the bar list dated at that time. It was later discovered that this “GLD” bar was actually owned by ETF Securities.”

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Monday, September 28th, 2015 EN

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