Is VIX-Gold Divergence Pricing In Too Much QE3 Hope (Or Not Enough)?

Tyler Durden's picture

The relationship between two measures of risk-aversion, VIX (forward expectations of equity volatility) and Gold (forward expectations of central bank largesse), are diverging in a very pro-printing manner over the last few days. Emprically, it appears we see a rotation through three phases: a perfectly anti-correlated 'liquidation' plunge in gold prices on dramatic rises in VIX (or risk); a highly correlated period of VIX and Gold movements (as uncertainty over the binary print-and-be-saved or don't-print-and-peril process evolves); and a hopeful period of anti-correlation where Gold rises and VIX plunges on the back of further printing to the rescue. We find ourselves in the latter phase currently. It appears that VIX at a 17 handle is pricing rather notably more QE (and its implied vol compression) relative to Gold at only $1620.


Chart: Bloomberg