VIX 6 mo.

VIX Up After Dull Summer

September 29th, 2016 by

stock rallyVolatility is creeping its way back into global trade. The swings up and down were very subdued these past few months, reaching their lowest levels in about two years.

While this is typically the cause during the slow summer months, when many traders are away on vacation, the return of volatility should certainly factor into your financial plans.

Bigger Swings

The idea of volatility in any market is twofold: it not only has an effect on how confident market participants are in making investments, but is a prime opportunity for speculators to take advantage of the larger swings up and down.

There’s ample evidence that the volatility index that measures these fluctuations, commonly known as the VIX, is trending upward. The metric took a recent step back, falling 5.4% on Wednesday and more than 10% this week alone.

Measurements of volatility were down during the dull summer period from late July to the beginning of this month. This was followed by a modest resurgence, as we’ve seen a general upswing. Even so, the VIX is currently running at less than half the levels it saw earlier around mid-year.

It may sound odd, the volatility of the VIX itself has been trending higher. The chart below shows its performance over the last six months.

VIX 6 mo.

VIX 6-month price chart. Source: Google Finance

Making Sense of the VIX

There are a number of investment strategies that attempt to take advantage of not just rising volatility but the aforementioned “volatility of the VIX.” Like any other index, you can take positions directly on the movement of the VIX. In addition, convictions about whether markets will be more or less volatile going forward often influence how traders positions themselves. As a general rule, more volatility begets more opportunity, considering that the larger swings in prices can make or break a particular bet on the markets. By contrast, when volatility is low, there’s not much money to be made.

gold-rallyVolatility could certainly have an effect on the gold market, too. When the VIX is rising, it’s a generalized reflection of volatility across the markets, not just volatility for gold. But since asset valuations are often interdependent to some extent, volatility in one part of the global economy can have an impact on others. The deflationary impact of falling crude oil prices are on example of this.

Up-and-down gold prices mean that there are more chances for investors to snatch up bullion at depressed prices when there are periodic dips. Moreover, it’s not simply that prices will see more action of this kind. The panic about unpredictable and volatile prices is one of the factors that help support gold and the precious metals as safe haven assets.

Even as the weather cools down (in some places, at least!), we could see volatile action heat up—especially as the conclusion to the presidential election nears.


The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.