We have previously shown in Market Measures, “Bond Volatility | Not Your Average Volatility” that there tends to be an inverse correlation between bonds prices and S&P 500 prices. Is a similar relationship present between Gold and the S&P 500?
Gold Futures have been moving inversely to the S&P 500 over the last 30 days. The correlation was not so clear back in August.
The CBOE publishes a volatility index (GVX) that tracks the implied volatility (IV) of gold futures options. GVX tends to react differently than the VIX does with movements in the S&P 500. The VIX, a measure of IV in SPX, tends to rises when the market experiences a sharp decline. GVX seemingly rises on large Gold price movements in either direction.
Gold may be a great portfolio diversifier while also acting as a hedging vehicle in times of market turbulence. However, if the goal is to decrease downside equity exposure, lightening up on long stock positions or adding long VIX positions would likely be a more effective strategy.
Watch this segment of Market Measures with TP (Tom Preston) and Tony Battista for the valuable takeaways and a better understanding of Gold, Gold volatility and the correlations to stocks and stock volatility.
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