Gold Explodes As NYSE Volume Re-Implodes

Tyler Durden's picture

NYSE volume was the 3rd lowest of the year so far (while ES was just below average) as stocks leaked lower all day to small net losses by the close. Financials led the drop in stocks as they start to catch up the credit market weakness we have been pointing to for over a week but while HY (the high yield credit spread index) continues to underperform (and stocks following at a lower beta), IG (investment grade credit spread index) modestly outperforms (the up-in-quality rotation) but HYG (the high-yield bond ETF) surged today into a world of its own once again. We suspect this is driven by 'arbitrage' flows between HY's recent richness and HYG's cheapness (as well as potential HY new issue impacts). Gold (and to a lesser extent Silver) was the story of the day as it exploded (perhaps on the Greek gold-collateral news) over $1780 intraday (now up over $55 in the last 3 days) although the USD did nothing (FX was quiet with JPY inching lower and EUR small higher as DXY leaked higher on the day to -0.25% on the week). The rest of the commodity complex jumped also (with WTI losing ground into the close even as Brent kept going - suggesting the spread decompression was in play). Treasuries rallied from early in the European day with yields dropping 6-8bps from the peaks and shifting the entire curve into the green for the week now (10y and 30Y around 1bps lower in yield). ES couldn't get significantly above VWAP today and CSFB's fear index (which tracks equity option skews) is at record highs which both suggest a preference to sell/cover is appearing (even as VIX diverged modestly from stocks today with implied correlation rising).

HY credit spreads (red) continued to widen from the snap back recovery last Thursday and stocks (blue) are leaking back to that same reality. IG credit spreads (dark red) are staying with stocks for now and modestly outperforming as we see HY-IG decompression (or up-in-quality rotation) showing up. HYG (green) opened exuberantly, tried to get back to reality and failed as it closed at its highs. While flows have been very big drivers in this ETF, we note there was some HY issuance today that may have been soaked up by the ETF and that rotation from old to new could have impacted the underlying portfolio (as comparing HY to HYG over the last week or two shows a notable divergence of real credit spreads decompressing and illiquid bonds underlying a beta-chasing ETF rising).

We suspect however, that this HY-HYG 'arbitrage' as the chart above highlights as the credit derivative market had got a little ahead of itself in the exuberance settings (remember we pointed out how rich the index had become relative to its underlying portfolio of names a week or two back). Therefore, we would not be getting too excited about HYG's performance today as a trend, as we appear to be very close once again to fair value.

Gold snapped higher today (following Oil and Silver's snap yesterday) as Copper, Silver , and Gold are all now over 3% higher this week (from Friday). WTI managed to get over $106 but the rise in Brent from the middle of the European market day (on rising rhetoric and tensions with Iran) as it made it over $123 and the spread broke $17 on the day kept a modest lid on WTI for now.


Treauries rallied handsomely from early this morning...

and while FX remained relatiovely calm (as in DXY did not move much broadly), the dispersion among the majors is becoming large - and notably EURUSD is having less impact as GBP and JPY drop away rapidly.

Finally, the CSFB Fear Index (which tracks how far out of the money a call option must be relative to an equivalent put option - i.e. a proxy for how skewed the option prices in the S&P 500 are becoming towards negative sentiment) reached record highs today. As is clear, it is somewhat coincident but certainly seems like a trend change is overdue and the vol, credit, and even stock moves of the last few days suggest momentum is slowing (as are the analogs to  1997 and last year). 

Of course so many are pinning hopes on next week's LTRO but we are afraid that this will not achieve the goldilocks feeling everyone hopes for - too large a draw is very worrisome (more subordination for example) and too small is very worrisome (not enough money printing) leaving a small window for 'just right' that unfortunately will not satisfy the monetary expansion hoarding equity market.


Charts: Bloomberg

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Howdan's picture

Apologies for being a "dullard" here but why is VIX falling even when equities are falling and UST's are rising? I would have thought that the implied vol on SPX would be getting more expensive as people bid up puts (and to a lesser extent, calls).

To see the VIX fall 3.1% today seems strange.

As always, I turn to the wise folk at ZeroHedge for assistance. Thank you......


credittrader's picture

Regarding VIX dropping as stocks rally - few reasons but most obvious is that the term structure of option vol is steepening (traders putting on vol steepeners) perhaps in anticipation of crossing the LTRO or Greek debt maturity threshold (i.e super short-term vol may be 'fine' but medium-term vol will pick up across these time-based events). Take a look at VIX vs VXV (short vs medium-term vol) and you'll see it (selling short-dated vol vs buying medium-term vol). Also skew steepened today too (so buying OTM protection and selling ATM). Implied correlation rose more in line with stocks decline (suggesting index protection demand was outweighing single names). Hope this helps.

Al Gorerhythm's picture

Your reply is in language that indicates that you hail from planet Volcrom, in the galaxy Andromeda. Welcome, fellow traveller. What do you make of our money system?

Howdan's picture

credittrader - Thank you very much indeed for your superbly detailed and insightful explanation. I really appreciate it.

All I have to do now is break it down into manageable parts so I can get my head around it!

Cheers for the help though, would it be possible for a "layman/beginner's" explanation please?




credittrader's picture

sorry - here's another shot at it. VIX measure very short-term near-the-money implied vol. If there is an event in the not-too-distant future (say next week or next month) that is likely to have major binary effect (LTRO huge or very small, or Greek PSI pass/fail) then a trader could sell short-term vol and buy vol the other side of the 'event time'. This way he is a 'little' hedged and nicely exposed to some 'event risk' - this 'steepens' the volatility term structure (the selling of short-dated vol against buying of medium-term vol). Looked at in isolation VIX can be misleading obviously. The other side of bets are to buy out of the money protection (as its cheap and lines up better with your 'binary' extreme outcome) - in this case you sell at-the-money vol and buy out of the money vol (once again putting selling pressure on VIX). The key is to watch VIX (at the money short-term vol), VXV (mid-term vol), Skews (CSFB or SKEW for out of the money views), and implied correlation (for a sense of whether traders are buying INDEX vol or single-name vol)...ok i think I just made it worse - lol!!

dark pools of soros's picture

betting on raindrops running down a window would be less degenerate

DrunkHarryReid's picture

credittrader: This has been a great explanation on the phenomenon. Once upon a time, a greater number of ZH comment posts were of this caliber. Thank you for being a beacon of light in a cesspool of generally worthless comments.

Flakmeister's picture

Yep... I remember those days...


candyman's picture

Wow, that was refreshing.

rokka's picture

Nice comment, and just spot on.

Flakmeister's picture

Very nice posts....


Hulk's picture

Fizzbin, but only on Wednesdays...

Al Gorerhythm's picture

There are no markets, only manipulations. (Adrian Douglas, GATA)

Other than that, can't help you.

J 457's picture

Buy VIX before any significant market moving event.  I think that time is now, as looking out 1-3 months there's more upside than down for VIX.

Alea Iactaest's picture

Why even buy VIX? Seriously. There are lots of ways to buy vol if that's your goal.

chump666's picture

Short dated VIX selling, going long VX futures and TVIX.  The market may be looking for a Feb 15 spike, both VX and TVIX (particularly) are leveraged very nicely.  The market could turn bearish very quickly, this is not a bull market, it's stopped dead in it's tracks and with VIX vols down - that's bearish and with VX and TVIX being bought that's another bearish signal.

Not that complex, the math's is, but the flow is't.  Basically traders position forward trades (futures) for moves.  If you believe, as 99% of the markets does, that stocks have topped.  Then you look at locking in volatility/selling into March, April 2012.

The market is a forward price indicator.  So stocks have generally priced in CB's liquidity (so far).  With the ECB gone rogue we may see some PIIGS yields drop and stocks react, but, the big question is if the LTRO does go 1trillion it has "CRISIS" written all over it, that and the ECB bond swap is already a messy deal + the bond (private) restructuring.  Europe is a A grade mess. 

distopiandreamboy's picture

I'm also long TVIX and curiously watching the price action now that Credit. Suisse isn't creating more shares.

chump666's picture

most of the market is, check this:

TOKYO (Dow Jones)--Bank of Japan Gov. Masaaki Shirakawa said Thursday that Japan's major banks would suffer losses totaling Y3.5 trillion if the yield on the 10-year government bond were to rise by 1 percentage point.

Oh f*ck yeah. 

Now Europe. We watch the Euro bond markets act all crazy as this BS Greek debt restructure takes place.  Private bond holders dump PIIGs debt and buy company debt.  Yields up, stocks down.  ECB...what a joke.

rokka's picture

Europe ganna be ok at that time, they will bailout Japan.

chump666's picture

Market sells hard prior to the LTRO, then we get that relief rally that gets crunched with sellers as the world falls apart.

Market looks rangy, nervous.  Looks like a perfect storm brewing.  See if the money pumps will do anything after the LTRO...

navy62802's picture

I've actually been quite shocked at the lack of volitility in the gold market this week. With the exception of 2 or 3 major bumps to the upside, gold price action has been extraordinarily quiet.

Al Gorerhythm's picture

Shocked? That is (para)normal.

Checz out silver priced in IOUs if you want to be shocked.

Chicken_Little's picture

The gold and silver bullion markets are infected with several bad guys. I watch the prices on GLOBEX and it's all trading bots linked to the dollar. They have 2 switches..dollar up, dollar down. And someone in London hammers prices and their Wall Street friends comply in COMEX. I can't believe this is happening!



navy62802's picture

Looking at the recent price volatility, or relative lack thereof, since Sunday afternoon it's almost as if the algos have gone silent. I find the perceived algo silence strangely disquieting, as I know that they're still out there.

oldman's picture


I don't know if this is so or not, but it appears the lack of volitity is the result of a lot of of shorts reversing position and a lot of sidelines dough finally pulling the trigger. it has been all BUYING and the the machine seems either to be among them or sitting on the sidelines for the first breath of air.

Interesting to see it go the other way----maybe war, maybe inflation, probably both are driving this   it does act like a young bull, though, so let's just enjoy the ride      om

JohnKozac's picture



Ebenezer: Who is that? The doctor?
Mrs. Dilber: The undertaker.
Ebenezer: You don't believe in letting the grass grow under your feet, do you?
The Undertaker: Ours is a very competitive profession, sir.



JohnKozac's picture

The spike in gold could be El Eerian's warning on CNBC to saty away from risky markets so people took a "flight to real value" (hard assets) as Murray Rothbard suggests in The Mystery of Banking and his other books. He is Mr El:


Investors Should Cut Risk as Global Woes Add Up: El-Erian



Chicken_Little's picture

I lost all my gold and silver eagles in a boat accident.  My back yard is peppered with bb's that set off metal detectors. I now live in a rental condo in Thailand. One of the 3 things is true.

dogbreath's picture

what is the budget per month for a decent life in thailand.  not shoestring not lavish

Ungaro's picture

$1,000/month in the Philippines yields an upper middle class lifestyle. $1,200 - $1,500 beachfront. Thailand is a bit more expensive, Cambodia a little less. I live just outside Cebu City, Philippines b/c most ppl speak English, newspapers, TV in English and the place is quite livable. But, we travel abroad about 4 times a year (one to Europe, one to US, AUS or NZ, and two trips in SE Asia).

Nobody For President's picture

that is useful information. thanks.

This topic is loaded with good stuff tonight! ZH is sort of a post-grad course in real-world (such as it is) economics.

AUD's picture

I'm thinking the key might be

Financials led the drop

Financials were taking a drubbing last time gold was moving up. The total liabilities of the financial system dwarf by many orders of magnitude that of central banks, even if they are ultimately cleared each day by the central bank

HungrySeagull's picture

Future College Course on wall street.

This black line is Gold. It goes up.

This red line is wall street. It goes down.

There are many lines. You need not bother with them. Just the one that goes up.


I suppose the next step is USA vending machines that spit out small gold pieces. At least until a crew with a dually and chain haul them away in the night.

Motorhead's picture

Charts, bitchez!

Rynak's picture

A few hours ago, someone responded to me "calm down guys, it's just a one percent rise"..... yeah right.

PUMP AND DUMP BITCHES! All over again, in the name of artificial volatility or obsession with creating square waves.

vast-dom's picture

charts look much purdier after i take massive hit of acid...and i know what to hedge now..

Al Huxley's picture

I only listen to Nouriel Roubini for advice on gold, I try to avoid looking at the price as I think that would be misleading. Ever since his sterling analysis (tweeting 'where's your $2000 gold now) back in December when gold was under 1600 I've been heavily short gold, and am now just waiting for an update from him as to what gold's real value is and when my short position should be closed. It's a little painful, but I'm sure it will be vindicated in the end. After all you can't eat gold (although at the moment I can't eat anything as I'm 'temporarily' underwater on my gold short position and am unable to buy food as a result).


shuckster's picture

The gold bugs will never be rational, no use trying to convince them. They think the future price of gold is $20,000 so they think the five ounces they bought with the last remaining piece of their 401ks is worth $100,000. Even if that were ever the case, it won't matter, because 5 ounces of gold is not that much gold regardless of the paper price. And they've all married their position so that if gold ever tanks, they'll starve, so they have to preach it on the mountain and on every street corner, just in order to save themselves from certain starvation. Angry responses below

bardot63's picture

Been hearing that since gold $500.  Keep it up, please. 

bardot63's picture

Stick with Roubini.  He's been right on gold since gold $250.  And he's so well read.  Just ask


BlackholeDivestment's picture

...anaylizing the goepolitical etc... Iran gold play, if one still needs another about face for ill gotten gain the expense of mercy, lol, there should be another supernatural deep BTFD Cup of Fornication post play ah comin. Look for the first steeerike spike dump into the ''saftey'' of Chairsatan's Zero Fiat Jonny Player Special fuel^ up the Greenback Wine of Warth. Till then, tread, eh hum, trade wisely. Lol. Gold looks a bit tricky right now, good for a pre-emptive dump, lol, due to the big bad voodo daddy. IMHO