By Sumit Roy
It doesn't take a rocket scientist to figure out that volatility in the precious metals markets has picked up in recent weeks. Gold, of course, saw a record decline on a dollar basis in April. Then today, silver plunged 7% only to rebound into positive territory later in the day.
But while gold and silver are currently volatile, traders don't necessarily think these outsized moves will last. The CBOE Gold ETF Volatility Index measures the market's expectation of 30-day volatility of gold prices by measuring the implied volatility on SPDR Gold Shares (GLD) options. While this measure of volatility has spiked, it is within its range of the last few years. Moreover, implied volatility was higher in 2011, when gold was touching its record-high above $1,922 and much higher in 2008 during the financial meltdown.
A similar picture emerges for silver when measuring the implied volatility on iShares Silver Trust (SLV) options. The index only goes back to 2011, but clearly shows that market expectations for volatility were higher in the past.