After a trading day that saw the steepest drop in the S&P 500 since 2008, briefly dropping into correction territory with a big sell-off — and then saw it actually close UP 0.3% — the word that comes to mind, besides Whew, is Volatility.
A lot of it.
Since the beginning of the year, the CBOE VIX Volatility Index is up about 74% — having risen from a more modest 17.60 to 29.90 at the close today.
In fact, over the past two years, market volatility has more than doubled, and that is something precious metal investors should be paying attention to.
Without getting too technical, the VIX signals the level of fear or stress in the stock market — using the S&P 500 index as a proxy for the broad market — and thus is widely known as a “Fear Index.”
The higher the VIX, the greater the level of fear and uncertainty in the market; levels above 30 indicate a lot of investor fear and enormous uncertainty.
Five years ago, Meera Shawn wrote in Market Realist, “Notably, we often see that an increase in volatility can lead to a rise in gold.”
Other studies also confirm a positive correlation between the VIX and gold prices but are too detailed to summarize in this article (e.g., Gorbel & Jeribi 2021, Klein et al 2018, Bauer & Lucey 2010).