Gold Price and Gold Volatility 8 comments
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With the unfolding of the latest chapters in the financial crisis, gold has received considerable attention as a safe haven investment. The rush into gold was greatly exacerbated when investors began to lose confidence in money market funds following the ‘breaking of the buck’ at Reserve Primary Fund last Tuesday.
One week later, there is still a great deal of fear and anxiety in the financial markets and gold is trading at its highest level in almost two months.
In the chart below, I have plotted the movements of GLD, the most popular gold ETF, along with GVZ, the CBOE’s gold volatility index (or Gold VIX) which was launched back on August 1st and is based on GLD.
As is the case with OVX (CBOE oil volatility index), there has generally been a positive correlation between the price of gold and gold volatility index. Note that in early August, the correlation between GLD and GVZ switched from positive to negative, as gold volatility began to rise even as gold prices declined. On about September 11th, however, the correlation between GLD and GVZ swung back to a strong positive one, where it has held for the past two weeks. It may just be a coincidence that this switch in correlation occurred just before a week of extreme financial panic, but I wanted to at least plant that seed and note that I will be following these and other related subjects as I evaluate some of the new volatility indices in this space going forward.
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This article has 8 comments:
The world did not "vote" to abandon the gold currency in favor of fiat paper - it was forced upon them. Hello! Look at what is happening as a result!
Fiat from Wikipedia: The terms fiat currency and fiat money relate to types of currency or money whose usefulness results, not from any intrinsic value or guarantee that it can be converted into gold or another currency, but instead from a government's order (fiat) that it must be accepted as a means of payment.[1] [2]
In other words, it is money for as long as people have faith in the government's handling of it.....
en.wikipedia.org/wiki/...
Please read the full definition here at the above link. Then make your investment decision....
"I cannot bring myself to invest (or speculate) in a commodity for which I can see no future."
And yet I'll bet your bank account is denominated in dollars, whose future most likely isn't very good given that the FED and Treasury are handing out Billions to everyone around the globe trying to forestall the complete collapse of the dollar-based economic model.
Gold has been an accepted store of value to all cultures for at least 5000 years. The dollar has only been around for a couple hundred years and already people are starting to wonder not IF, but WHEN it will become nearly worthless.
Are you sure that's where you want to put your 'savings'? Germans used to burn bundles of Marks because they could get more heat out of the currency than the wood it bought. Zimbabwe recently dropped TEN zeros off their currency (1 new $Z = 10,000,000,000 old $Z).
If you feel confident that the $10 Trillion (and growing) US debt will be paid off soon and not grow exponentially over time, then you should be fine. However, you might want to review this article before making up your mind:
www.321gold.com/editor...
Just wait until the 'Boomers start retiring and collecting Social Security and Medicare benefits. At that point they will start draining money out of the Treasury instead of contributing to it via payroll taxes. The debt will balloon like nothing you've ever seen.
I buy banks because I get a very good service from them. I buy AAPL because people buy iphones, ipods and macs. I buy SBUX because I like their coffee. I buy steel because it builds my offices. I buy BA because I fly frequently and they make them. I buy oil because it makes my car go places. I buy pharma because their products cure. I buy WMT because they sell a bunch of stuff that people buy. I buy some utilities cause we need electricity.
For gold, there is no physical use; I'll never buy it - unless someone discovers a use for it. There are some interesting developments in that area, but way too early stage for me.
Maybe you should look at the performance of each and everry one of the investments you've mentioned. Perhaps it will tell you something about the relevance of your strategy.
I'll take a "no future" holding over a "we priced the future in it forty times already" investment any day of the week.