Some Observations On Recent Gold (And Silver) Volatility

Tyler Durden's picture

Submitted by Jeff Clark of Casey Research

The Face of Volatility

On February 29, gold dropped 4.8% and silver 6.2% (based on London fix prices). That's quite the fall for one day. We've seen prices that have risen that much, too. But as I'm about to show, these ain't nothin', baby.

Based on our experience, we've been saying for some time that volatility will increase as the markets fight their way to the mania phase of this cycle – and that once there, the gyrations will jump even higher. This call doesn't exactly require one to go out on a limb; it makes sense since more investors will be crowding in – and volatility was high in the 1979-'80 mania.

First, let's put last Wednesday's big plunge in perspective. Here's a picture of the daily changes in the gold price since 2003, based on London fix prices. (This chart is very busy, but I want to show the bulk of the bull market in one visual.)

(Click on image to enlarge)

A 4.8% decline is one of gold's bigger one-day movements over the past nine-plus years. But as you can see, there have been a number of days where gold rose or fell more than 5%. And it exceeded 6% on five occasions.

Here are the data for silver.

(Click on image to enlarge)

Last Wednesday's decline of 6.2% was one of the metal's bigger one-day movements. However, it's exceeded 10% on 14 occasions, 15% three times, and rose an incredible 20.06% on September 18, 2008.

You might think this kind of volatility is high – and it's true. Worse – or better, depending on how you see things – the volatility in the underlying commodity is magnified in the related company stocks. This is why Doug Casey calls mining stocks, especially the juniors, "the most volatile stocks on earth." But the thing is, metals volatility has been higher in the past, particularly during a mania.

Here's what I mean.

The following chart documents gold's daily price changes from 1976 through the end of 1980. Take a look at the jump in volatility in 1979-'80.

(Click on image to enlarge)

Volatility became the norm in 1979 and especially 1980. Fluctuations of 4% or more were not uncommon.

Here's the same chart for silver. The metal's volatility during the 1979-'80 period became extreme.

(Click on image to enlarge)

Daily price movements of 6% or more didn't occur once prior to 1979 – but then they became commonplace.

I wanted to take a closer look at the biggest price fluctuations during this period, so I ferreted out the largest days of volatility for each metal. For gold, I selected daily movements of greater than 5%.

(Click on image to enlarge)

During this five-year period, gold saw fluctuations greater than 5% on 38 days (19 up, 19 down). Not surprisingly, more "up" days occurred leading up to gold's peak of January 21, 1980, and more down days came after it.

And yes, gold rose an incredible 13.3% on January 3, 1980. As it turned out, that biggest one-day rise was only 18 calendar days away from the very peak of the market. And the biggest decline of 13.2% on January 22, 1980 was the signal that the top was in.

For silver, I used one-day movements of 10% or more, all of which occurred in 1979 and 1980.

(Click on image to enlarge)

The silver price had fluctuations of 10% or more on 34 days (17 up, 17 down). They occurred over a period of only 15 months, an average of more than two per month.

And yes, silver really did rise a whopping 36.5% on September 18, 1979.

So while last Wednesday's price movements for gold and silver were big, we simply haven't seen this kind of volatility in our current bull market.

Now let's have some fun. Let's say we match the most volatile days from 1979-'80 at some point before the current bull market is over. If we use gold's biggest up day (13.3%) and biggest down day (13.2%), here's what would happen to prices from various levels. Remember, these are one-day gains and retreats:

Gold Price


Imagine gold jumping from $1,800 to $2,039.40 in one day!

However, unless you think $1,800 is the level from which the mania starts, it's more likely we'd see a 13.3% advance (or something similar) from a higher starting point. We'd thus probably see gold jumping to $5,665 from $5,000, for example. And further, that would probably signal we're near the top.

Keep in mind that volatility worked both ways during the mania, so dropping from $4,000 to $3,472 or something similar is likely to occur as well.

Here's the same table for silver, with its biggest up day of 36.5% and down day of 18.5%.

Silver  Price


Can you imagine silver starting the day at $80 and hitting $109.20 before you go to bed that night? Something like that will probably happen at least once before this bull market is over. As with gold, though, that kind of movement is more likely to take place from a higher level, such as $100 or $125 (or higher?). And a fall like $100 to $81.50 will probably be part of the trend as well.

There are some definite conclusions we can draw from the historical picture:

  • First, if history repeats, or even rhymes, our biggest days of volatility are ahead. And they will be normal.
  • Second, big price fluctuations will be common as we enter the mania and approach the peak. In fact, when large daily movements become the norm, the historical record suggests we will be nearing the end of the cycle.
  • Third, since current volatility has thus far been lower than what was experienced during the final phase of the 1970s bull market, we are not in a bubble, nor yet in the mania phase, and nowhere near the top. Remember that the next time you hear some nincompoop spew bubble talk on CNBC.

What can an investor do with this information? Prepare yourself for bigger daily swings – in both directions. And buying on those outsized drops is probably a good strategy…

Because we now know what volatility looks like.

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Bay of Pigs's picture

Fasten your seatbelts...

And hang on with Iron Fisted Resolution.

hedgeless_horseman's picture




My nomination for this month's Dumbfuck Journalist Award winner comes from The Atlantic...


How Much Gold Do You Need to Pay Yale's Tuition?  The Same as in 1900


"The only substantive conclusion I can think of to justify this post (really, I just thought the graph was cool) is that the picture is such a handy approximation of economic strength, partly because gold is a hedge you buy when you're afraid everything is falling apart."\


The picture is such a handy approximation of economic strength?  Really?  This poor sop of a writer, Derek Thompson, "oversees business coverage for the Atlantic's website," yet cannot comprehend that this "cool graph" is a handy approximation of our government's money printing, and not economic strength.  

nmewn's picture
Derek Thompson... Education
  • journalism , political science and legal studies

    Medill School of Journalism at Northwestern University

Well, there ya go...ROTFLMAO!!!

trav7777's picture

all I know is that silverbugz got blowtorched

tmosley's picture

Everything you know is wrong, and you don't know anything else.

Deo vindice's picture

+1 for my personal 'quote of the day'.

Bay of Pigs's picture

Zero for fifteen. He's perfect. 

Sudden Debt's picture

No, it's good that he's here. If there where only silverbugs on ZH there would never be a conversation worht while.


XenoFrog's picture

Because in the bizarro world of your self-delusion, every silver bug buys high and sells any time the price falls.

Hugh G Rection's picture

Should have listened to the omnipotent Turd Ferguson about this.


He has always maintained that prices may go up, or down, that the market is controlled, but he is still able to accurately chart all the subtleties.

He also has a sixth sense for foreign policy, and accurately states that Government told the truth about 9/11.

Bay of Pigs's picture

I got banned from there when I was #1 on his leaderboard.

Go figure...

deKevelioc's picture

When you turn into a silverbug, Trav, I'll be sellin'.  LOL  Keep up the funny posts.  I've put some salve on my blow-torched behind.



tmosley's picture

I wouldn't say that, as Trav claims to have been a silverbug for more than a decade.  

He is just a raging hypocrite.  He wants everyone else to sell their silver so that it all gets used up, making his more valuable, so he is the only one left with any money to buy the precious oil.

ratpack1968's picture

Problem is, you aren't looking at the big picture. Money supply has exploded and though this could take a few more years to play out, fiat debasement cannot go on forever. Short-term fluctuations are meaningless when viewed from 30,000 feet. My basis in silver is in the low to mid single digits and fundamentals havent changed so torch away - I'll accumulate more. 

SilverDOG's picture



Yes, OVERVIEW! Most are completely incapable.

Never mind the 30 second info web, they are caught by and addicted to.

silvermaister's picture

trav you are from Texas ???

Probably working for Ben !!

Banjo's picture

Considering most "silver bugs" don't trade the only thing the price move lower in the past hours and days is quite literally a buying opportunity.


Now traders of paper silver assets who were long yes they got hosed. But wholly different species.


Oh you are of feeble mind. That is a moron :)

ViewfromUndertheBridge's picture

It is a cool shows gold has to double again before it approaches the 1980 peak and that is a real world example that makes a nonsense of the claim that $850 then is $2,500 now....given the spartan nature of edumacation back then I make it $8,500. 

jeff montanye's picture

yes it is and yes it does, and that being the top assumes that the market doesn't overrun on its second (and greater?) bout with u.s. high inflation since ww2's immediate aftermath.  what with peak oil, peak debt, peak "printing" it might just be higher.  the maligned author goes on to make what imo seem reasonable if not highly original points: Investors shift their money into stocks and equity when times are good, driving down the price of gold (and driving up the gold-for-tuition figure). The graph's steady rise from the 1940s through the 1960s tracks a strong post-war economy. The collapse in the 1970s into 1980 tracks inflation and the '81 recession. Then the gold-for-tuition figure rides the 1990s' boom and goes back down the roller coaster after 2000.

NewThor's picture

Fasten your seatbelts? That is so 1999.

It's more like shine your diamond water armor.

This March is the door hinge of 2012.

It's all about to get really FUBAR really fast.

MARS is near.

X 1.1 solar flare

War with Iran/Syria/Russia/China

the assassination of a major power player

and then the San Madrid.

How bright can your soul shine, bitchez?


BeetleBailey's picture

...yeah...but the weed's still good.....shhhhhh...don't let on

AbruptlyKawaii's picture

LulzSec Tango Down


just a quick thread jack to let you all know that lulzsec and annon ops head "sabu" plus 5 others have been arrested by the fbi


the nominal leader of lulzsec and anonymous was arrested and flipped by fbi and ratted out all of his cohorts.


the dox reveal they sucked at serious hacking but as we all know excelled at bragging

I read about 10 articles on this plus the forbes article on kayla from a few months ago. above link has story.

EDIT: Re: Kayla, as mentioned in the forbes piece, many thought kayla was a teenage girl, ends up she was a he : Ryan Ackroyd

and one Jeremy Hammond aka “Anarchaos,” of Chicago charged with the december stratfor breach.


ExpendableOne's picture

The perils of working in an "anon" environment.  By definition, you have no idea who's on the other end of that tweet, email, inadvertent confession....



AbruptlyKawaii's picture

always always always put ego in check fly solo stay disciplined if you are going to go subversive, and another thing, these guys are supposed to be so called "hacktavists", hacking for ideals not for money,  but  "sabu" their "leader" ( I thought they were supposed to be leaderless ) who flipped on them and ratted them all out, he was selling stolen credit cards on his facebook account! doh!


Campagnolo's picture

why are you not posting any more on your boss blog: Turd?

Bay of Pigs's picture

Read above asshat. You were one of the worst trolls I ever saw there.

XenoFrog's picture

Good thing I put on my big girl pants before buying all this silver.

NewThor's picture

Well, if you hurt yourself carrying all that silver and need help taking your pants off.

Let me know.


chump666's picture

Worst pick up line ever.

That is a shocker.

But you got an uptick from me's picture

Uptick. Is that what the young folks are calling it these days?

NoClueSneaker's picture

"... if u wanna get something really cheap, well, I'm yours .... "

Fixed the line fer u. ( And it works ).

StychoKiller's picture

"Thor?  I can't even pith!"

BeetleBailey's picture

You go girl! Follow your techs and you'll be fine.

DavidC's picture

Fascinating! Thank you.


saturno_v's picture

....and what popped Gold at the height of the mania was Volcker double digit interest rates......can you imagine Bernanke doing something even remotely similar??


Da Treasuries are da bubble. 

NewThor's picture

The Federal Reserve is the Bubbles.

TruthInSunshine's picture

2 things: 

1)  If The Bernankinfreak did something similar, even remotely so, it'll be 1932 all over again.

2)  Where getting to the point where the actual, real market, which has been napping, comes into play again, and jacks rates despite The Bernankinfreak's best efforts to thwart it, and I guarandamntee it that the actual, real market wins. In which case, it'll be 1932 all over again. In fact, the illustrious duo of The Bernank & ECB have now all but guaranteed an interest rate shock that will be in the form of a sudden, many standard deviations from the mean, event, in the not too distant future. Think the U.S. downgrade last go around was consequential? That was nothing compared to what we're guaranteed to see in the next year.


The Bernank has been proclaimed a success so prematurely in terms of his 'mastery' of rates that it's sickening, when the piker brought a pen knife to a tank battle, and the sloppy journalists who declared him some sort of success are a bunch of 2nd rate hacks.

saturno_v's picture



It always fascinate me to try to understand the "mechanics" of the least initially, in theory, Bernanke & Co (ECB, BOJ, etc..) can nominally keep the interest rates at whatever target they want, nobody prevent them to buy 100% of the bonds in circulation (the "great" Paul Krugman actually said exactly that....let the others dump, our Fed can buy all of it) but what happen at this point?? The currency drift towards toilet paper status with a meaningless bond market with basically only one buyer right?? Then at this moment Uncle Ben is forced to raise the interest rates to avoid the total annihiliation of the I correct?? 

TruthInSunshine's picture

You have the gist of it, if I'm correct.

And it's probably not going to be be Bernanke that has to jack rates ala Volcker style, but a person brought in under a dire emergency, reminiscent of 1979, in response to the true market reinforcing the fact that it is King Kong, no matter what those who naively have fallen under The Bernank's cult of personality </sarc> believe about his omniscient powers.

So, when Americans literally squeal due to the vice grip of the inflation they feel, no matter how laughable the BLS or Fed Reserve opinions on the matter is, politicians will not be able to duck the public bitching rising to a fevered pitch for blood, and The Bernank will be gone, either of free will or mutiny.

BeetleBailey's picture

...and they'll blame it alllllll on George Bush dammit man! He installed the Bernank in the first place...with lots of help from GS, JPM as to whom would replace Herr GreenTongue......


Bush's 2nd term was monetarily run by BSB. He and Paulson must have a secret reunion somewhere remote, where they can laugh and openly talk about the unconstitutional, unelected power(s) they have/had.....

jeff montanye's picture

yes bush will be blamed.  yet somehow imo obama will be mentioned as well.

ddtrader's picture

Carry the analysis to its endpoint - Holding the 2013 federal budget (a joke) constatnt, what would an average interest rate of say 6% on $16T of debt do to the ANNUAL US deficit??  Let's see if my math holds true...that's approximately $960BN of interest expense versus current federal tax revenues of roughly $2.8T at best.  This would lead to an even larger annual deficit (based on 2013 budget numbers) bringing the annual deficit to almost $1.8T, or 45% of the federal budget.  The end would come very rapidly. 

deKevelioc's picture

There's a chance that gold will not only soar to heights now unimaginable, but it will stay high, as the financial system desperately needs stable currencies--backed by something, anything, tangible.



i_fly_me's picture

weak -> strong


devo's picture

Preaching to the choir. ZH readers hold their gold. You need to get this article in the mainstream media if you want it to have any effect.

Something not mentioned in the article: war = bullish for gold. A lot of different tensions right now.

Pegasus Muse's picture

Good day to nibble a wee bit.  SLW, AG, CEF -- all of them on sale.