Is Gold Volatility The Cheapest Event-Risk Hedge?

Tyler Durden's picture

With the plethora of mounting event risks, from the end of Operation Twist to numerous elections, the possibility of QE3, the US fiscal situation, the ECB/Bundesbank battle, and China's on-again-off-again economy, it seems finding a low cost long volatility 'bet' is the best way to gather some macro protection (aside from total liquidation that is). Earlier, we noted how expensive S&P 500 implied volatility had become relative to its realized vol - suggesting that being long S&P vol is not a low-cost option. However, as Barclays points out, GLD (and slightly less so SLV) is among the cheapest (defined based on percentiles of implied vol over realized vol) volatilities available. SPY vol is trading at a 60% premium to its realized vol while GLD is trading at a 20% discount. While the main risk to being long GLD volatility is a continued drift lower in realized vol, the current realized volatility is near the lower-end of its empirical range and there appear to be a number of catalysts, as we noted above, for gold (or hard assets in general) to break from its range-bound YTD performance in price and volatility (either up - more likely in our view - or down).


The lower pane shows the relative discount (or premium) of implied vol to realized vol for GLD - currently at a 20% discount which has historically been a relative extreme (though we have been here for a few months as the range-bound market plays out). The upper pane shows what happened last year with price (green) and implied/realized volatility (black/orange) as events started to unfold mid-year.


And across asset-classes, Barclays notes GLD, SLV, and TLT volatility looks 'cheap' while XLP, XLK, XLV, and SPY appear relatively rich (in terms of implied vol)...

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CURWAR2012's picture

Buy VXX in May then sell it in early December after QE3


flacon's picture

Can someone provide me with a GREEN PILL that puts me to sleep for the next FIVE YEARS? Seriously... once you are loaded up on the shiny stuff (white and yellow) then just fugadaboutit! 

mt paul's picture

long in hand silver


tell me about it 

midtowng's picture

The question is: what the fuck is wrong with the miners?

Desert Irish's picture

If there's a QE III it will be well proir to the November elections....

vast-dom's picture

SLV all the way! When the GSR tightens, since silver is actually used for industry much more, this bet will drive hard up again like run ups #1 circa Hunt Bros. and #2 of late.


COMEX can fuck itself they won't be able to stop this 3rd run.

LowProfile's picture


In hand (or at least PSLV) or fuck off.

Captain Benny's picture

Why would anyone clear a trade through DTCC to buy PSLV when actual metal holds room temperature quite well?

theMAXILOPEZpsycho's picture

Its for people who have money tied up in funds or 401Ks and are only allowed to purchase via the equity markets...

I long thought the same thing; now you know too

MeelionDollerBogus's picture

what if VXX just keeps going up as SPY/DIA roll over and SLV doesn't move up all that much? What if the GSR has already seen its best days as central banks buy gold tons at a time literally and ignore silver? One day a global currency could be gold-backed ... SILVER? I think not. Could be wrong but... how much you want to bet on that?

I say stack what suits you best & take your paper profits while you can using Options and carefully chosen stop-loss targets.

duo's picture

Yup. I don't even bother checking the gold price anymore when I wake up.  No matter what, the miners will be down. 

Move along, this is not the wealth preservation vehicle you're looking for.

Stackers's picture

3 words. No Counterparty Risk. Yes it is the wealth preservation vehicle you are looking for. Paper derivative leveraged assets traded in an algo manipulated (cough, cough) "market" are not the wealth preservation vehicles you are looking for.

In the age of MF Global. Hundreds of trillions in derivative counter party risk keeping ones "liquid" assets in shiney lumps of barbous metal is the only safety there is.

duo's picture

I was being sarcastic, a la MDB

defencev's picture

Here is my concrete suggestion for Ron Paul which, in my opinion, can make Gold bugs really happy. Presuming that Romney is GOP nominee, Ron Paul can pledge not to run as a third party candidate in exchange of Romney pledge to abolish capital gains on PM trades. What it will accomplish? It will finally allow various Goldbugs in this country to start various barter arrangements with Gold (and Silver) as a media of exchange. That will surely start driving the price of the Gold (and other PM) up. If Romney agrees, he will also be able to attract (the healthiest IMHO) subset of supporters of Paul

to vote for him rather than (God forbid) for Obama.

Zgangsta's picture

The fatal flaw in that plan is relying on Romney to keep his word.

defencev's picture

 I agree. There is a risk of flip flopping. Still, I would take my chances versus

Gold confiscation under Obama which is a sure thing in case of serious crisis IMHO.

Zgangsta's picture

Nobody can confiscate what they can't find.

noses's picture

Looking at Guantanamo seeing all the confiscated non-terrorists because they couldn't find terrorists shows that that "they" can find anything they want. I'm pretty convinced that even you will tell where all your gold is after a few days of their legal interrogation techniques, too. And using them on anyone they like sems to be explicitly permitted now.

lakecity55's picture

I would not put it past them to hold a gun to your kid's head to make you tell them. After you do, they shoot you and your kid.

Keep Stackin' !

Watch Obeyme's eyes sometime. He is one stone cold rat fucker.

defencev's picture

More precisely, nobody can confiscate something that goes not exist.

Or "Proletraiat has nothing to lose except for chains..." I understand where are you coming from from, Marxist rat...

defencev's picture

All these pluses you got are from Obama supporters. I did not know that this website is slipping into Marxist outlet. But in the end of the day who wants to give up all these food stamps and other government handouts? I suspect that this is a bulk of posters over here...And , of course, they like to write about Gold but own nothing...

prole's picture

You're the only Obomney supporter I see on this thread with your bad (age three level) false dilemma self.

"If you don't help sink the Ron Paul campaign you are an Obomney supporter!" (oh, .forgot, therefore you are also a Marxist!)

Here is a hint for your empty head-- The upvotes he got were from people who have long noticed that there is absolutely no difference between Obaminable and Romnel. Why would you support one or the other of two equal evils?

One puts you on a cage on top of a car until you shiite yourself, the other just eats you.

lakecity55's picture

How about we elect a guy who doesn't want it?

Hansel's picture

I'd settle for gold not being taxed as a collectable.  To tax constitutional money at 28% is one of the most tyrannical scams going.

Also, your plan for Mitt to promise to do something after he is elected will probably work out about as well as "hope and change."

LowProfile's picture

I thought you lost all your gold in a boating accident!

Some friends of mine, their father had some gold and died, and when they went looking for it, couldn't find it!  Said in his will he had buried it somewhere, and "Good luck finding it you little fuckers!".  They shrugged their shoulders and said "Dad always was eccentric.".  The estate took the loss.  Poor suckers...  They doubt it will EVER be found...

Likstane's picture

I still don't understand this payment of tax on gold or silver you people describe.

francis_sawyer's picture

Shhhh! Don't tell anyone!

Long-John-Silver's picture

GLD and SLV are nothing but paper leveraged at 100:1. 100 paper ounces of paper is backed by only one troy ounce of physical metal. Good Luck cashing in your GLD and SLV ounces when the SHTF.

DoChenRollingBearing's picture

+ 1

Yes, I would advise just buying the physical.  Then you KNOW it's yours.

SV's picture

Speaking of physical (heh heh), Jesse just updated his NAV premium charts again:

PHYS is a really low premium right now.  It's interesting if not symptomatic of an event (he was thinking offering) and I'm not sure what to read into it either with contracts ending/expiring this week.

fuu's picture

Typical doomer tripe. Don't you have a blog to pimp?

fuu's picture

Well then why don't you just pimp it instead of creating more bag holders? You sound like mosley.

Bay of Pigs's picture

So what's your investment advice you stupid asshole?

fuu's picture

Oh settle down BoP, just a little chat room fun.

DoChenRollingBearing's picture

Bay, I invited everyone in Z Chat to ZH Flash Mob this post.  Weaker tuen-out than I had hoped!

fuu's picture

You know I love the silvers.

MeelionDollerBogus's picture

EVERYONE is a bag-holder.

House. Car. Fuel. Food. Insurance. Gold. Silver. Paper cash. Contracts. Wages. Boat. Water supply.

Everything has a cost and every physical system has entropy.

You're fooling yourself if you think you're NOT a bag holder.

Some bags are less useful than others longer-term. Gold & silver are NOT that bag.

Most important... on a long enough timeline everyone's survival rate IS zero.

Ima anal sphincter's picture

When I lay it all out on a table and everything hits with a "thud", I don't care what Kitco has to say. Did the Gold at $900 and Silver at $17. If I could, I'd buy more right now. It's just one small piece of artillery fighting the "man." Ya-never know though....with enough small hits, their wall might just come crumpling  down.

LetThemEatRand's picture

Central banks are buying physical gold.  Horse's [] mouth.

francis_sawyer's picture

Hell ~ that's a 'sell the news' statement at face value...

LowProfile's picture

You would have been selling for five years now.

noses's picture

I thought centrla banks were run by asses...

Dapper Dan's picture

This is way off topic but,

April 23, 2012


The Fed Works for the Very Rich Why Paul Krugman is Full of Shit


by ROB URIE Late last week Princeton University economist and New York Times columnist Paul Krugman wrote a piece on his NY Times blog that history will view as the best evidence to appear in at least several decades of the utter irrelevance of mainstream economics. The piece purported to respond to a Wall Street Journal editorial by Mark Spitznagel in which Mr. Spitznagel argued broadly the Austrian economists’ line that all government spending favors one group over another and more specifically that the Fed’s Quantitative Easing (QE) programs of recent years favor banks and the rich.

Mr. Krugman could have argued his New Keynesian shtick that government investment can prevent deflationary spirals in economic downturns and all would be as it was. Instead, he chose to argue (Plutocrats and Printing Presses –, an astonishing amount of evidence to the contrary, that Fed QE policies have not disproportionately benefited banks and the very rich and were in fact enacted against their wishes and interests.

The basis of his argument has two parts:

(1) conservative economists argue that QE is “printing money,” they also argue that printing money causes inflation, banks hate inflation (because loans get repaid in less valuable dollars), therefore banks opposed QE and

(2) that banks earn profits from the difference between long term interest rates and short term interest rates (NIM, or Net Interest Margin), QE has reduced this difference, therefore the banks have seen their profits fall from QE.

read the rest


LetThemEatRand's picture

"banks hate inflation (because loans get repaid in less valuable dollars), therefore banks opposed QE"

Inflate one hundred percent per year or one thousand percent.  It doesn't matter if you are given advance access to the excess cash so you can buy physical assets ahead of everyone else.   All of the bad loans are on the taxpayer side of the balance sheet.  

Dre4dwolf's picture

Considering the banks should all be dead since 3 years ago, I think that they are quite happy with the QE which has essentially inflated the banks stock price (boosting faith in the banks).... we are in a financial equity bubble thats bound to pop any day... lets face it... the only real asset banks have is... confidence, if people don't have confidence that JP Morgan is going to be there tomorrow shaking people down like thugs in the night , they wouldn't bother buying their stock and they would withdraw their money leaving them with an empty bag and a fist full of toilet paper.



Tech bubble -> pop, Housing bubble ->pop, equity bubble -> pop, ->gold (real assets/tulips) bubble -> pop -> new currency standard -> Tech bubble -> housing bubble -> pop, ->equity bubble -> pop.


History only repeats itself.


Technology is the only valuable investment for society long term.

Tech that

-Increasaes production of food, energy, clean water

-decreases manufacturing  costs.


That raises the standard of living of a society so even if your poor you will essentially be living better than a king in the Victorian age.


The problem is taxes, are too high and government spending is being squandered, the money should be left to the free market to choose what needs to be made.


If the govt was spending the money on something worthwhile like R&D on  the military side for new technologies that have potential implementation on the commercial side... it would be worth it... but they are wasting it on crap like solar panels, and keeping the good stuff classified, they have research on stuff that can help society but its buried in bureaucratic shit piles.




ISEEIT's picture

Okay. I'll just say it.

My take is that the banksters love them some obbama. If this is true then QE3 will not happen in an announced manner. Yes, the fed branch of the BIS will continue to monetize debt, it shall do so however in a stealth mode as the powers that be understand that open QE drives inflation and Gold/oil/gas higher in relative value.

 Temporary USD strength and the short term mirage of economic health that it will conjure is some powerful voodoo. Maybe even enough to get the crony capitalist wet dream a second term?

Yeah, I get it. Romney is plan B.

Plan A is so attractive as to make it worth the shot.

obama is the perfect template president. I wager that they will go all in to gift him a second term.

All else considered, Pump prices will play a role and further open devaluation of the USD might be enough to bring their poseur down. Strong dollar will make him look good.

That's my story and I'm sticking with it.

LetThemEatRand's picture

Romney is a banker.  The bankers love Obama because the Red Team hates Obama.  Fox News convinces most of the Red Team he is a Marxist, and that the bankers are not to blame for the crisis.  Best for Obama to win so they can keep blaming Marxists.  Corzine is the latest example of how the oligarchs use Obama to convince the Red Team that they just need to elect a good banker to fix things.   Corzine is a banker, but he supported Obama so he must be the problem.   Carrying the metaphor:  The people that run this country are the NFL.  Do you think the NFL cares if New England or Dallas or Denver wins the next superbowl?  Just so long as people keep watching and rooting for their team....