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

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Cognitive Dissonance's picture

Can't have Gold, the ONLY credible warning sign of fiat printing insanity, flashing red before the Bernank can we?

carbonmutant's picture

Gold doesn't act as though it's buying this Bernanke/Merkel rumor...

lemonobrien's picture

i'm not buying b/c i know they ain't going to do a massive QE b/c it's politically incorrect; they have to scare the nay-sayers before they get consensus.


it would give republicans too much fuel against o'bamma. After the election though; around dec. 23, semi-collapse; emergency, christmas time surprise; print-motherfuckers-print; we don't need the motherfucker let the motherfucker print.


my thoughts anyway.

slaughterer's picture

In answer to the question in the title: NOT ENOUGH.  

VonManstein's picture

lets be frank about this.

today has been crazy DXY, SPX, EUR, TSY all the commodity currencies going uber QE mental. Just the PMs and miners getting bullied.

either. PMs are geniousous who can see the future, that being no QE. OR massive manipulation.

Or the third option is i dont know what im talking about.

Oh, and the fourth, This is just the nature of the beast created by the central banks... its not suppose to make sense to outsiders.

gjp's picture

Increasingly, the fourth is the only conclusion that fits.  The beast simply exists to take outsider money.  Outsiders who consider themselves rational take positions in pms and may or may not short a transparently overvalued and overleveraged market.  So those positions have been losing and will continue to lose until something breaks with inflation, trade wars, or supply chain mistrust.

ACP's picture

Just using up all the qe3 money, is all. Every last penny. Last sales 6/28, last purchases 6/29.

LawsofPhysics's picture

Yep, exponential circle jerk.

DosZap's picture

THe CB's have been selling into the markets to cap Gold at around $1620.00............the ony way this manipulation stops is when people from all over the world start heading for Gold.

The US Gvt has also gave JPM permission to Manipulate the Silver market.........that is whay its not able to greak ou.

Crooked mkts both way.

VonManstein's picture

Old Ted Butler has just written on this topic. It cant last though, and its not even a problem for physical buyers.

Bloggers and Financial pundits and Central banks have destroyed the gold market with QE and QE talk and pinning golds rise on QE. Now all the dumb people think gold wont rise without QE and paper sell the hell out of it when Benny fails to come up with the goods.

At the end of the day, all it comes down to is who has the gold.

Let them have their fun, either way. Let them play games let them do whatver tehy choose. Stay out the paper markets and be a winner! And remind everyone that GOLD DOES NOT NEED QE TO RISE with rates where they are

Marginal Call's picture

Gold rises with the debt ceiling.  Every time.  New one coming up Sept/Oct.

RoadKill's picture

VXX and SPX are now pricing in not just $1 trillion of full fledged QE3, they are pricing in a solution in Europe and a recovery in the US and China growth..

This ramp is going to end VERY badly tomorrow. No QE probably not even a twist. Then on Thursday a failed Spanish auction and over the weekend a request for a full bailout for Spain. The bulls are going to feel stupid when they give this all up and we retest lows next week.

Debeachesand Jerseyshores's picture

Not exactly a bullish prediction (excuse the sarcasm),but a pretty clear picture of the future as we head for the "abyss".

I Am Not a Copper Top's picture

Hope you are right.  Stocks are really looking smart and sexy right now.

Common Man's picture

With the S&P above 1360, there's no way baldie can on it bitchez!



Spaceman Spiff's picture

I want to believe.  I truly do.   It seems so logical that he can't print.   National gas average at $3.50ish.   DOW and SP way too elevated.   Interest rates at record lows.   Commodity prices still elevated.


Then again it is an election year and these banksters can't seem to allow for any deflation anymore.    I want off this crap roller coaster.

junkyardjack's picture

When he prints it'll be to show that he does not believe the stock market is the economy.  

They have been pumping out negative economic news at full tilt over the past month.  Remember back at the beginning of the year all the data was rosy, now that they have enough talking points to say the economy is not recovering he can do "what needs to be done" to help save Main Street....

hedgehog9999's picture

I'll have to say, he has no clue on how to figure out outcomes ("sub-prime is contained, etc, etc"), but the one thing he is very good at is surprising everybody, he has done it a few times where verybody was dumbfounded and a panic move ensued.

My vote is we move to new highs and then le deluge.....

kito's picture

how interesting, goldman dumps its garbage into its own rumor ramp that ben will print (he wont), and will then buy said garbage back post meeting.....sigh.......NO QE3 COMING PRE ELECTION!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! NO GOLD 2000 UNTIL QE3!!!!!!!!MOVE ON ALREADY!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

long-shorty's picture

told a few close friends on Friday that I believe gold would start to crack hard this week, and I still do. we are long out of the money puts on gld for 30 bps. to me, the price of gold looks just like the chart of the Nasdaq composite in November 2000.

let the thumbs down begin. :-)

Gief Gold Plox's picture

I for one, Sir, stand ready to buy shitloads more of the barbarous relic stuff should your prediction come true. Here's an up-vote in hopes you're correct and I get a hefty discount.

long-shorty's picture

You aren't the first one to express that sentiment to me. I'll give you a thumbs up because I am hoping you get your chance to buy at a deep discount price.

SeverinSlade's picture

I think it's likely that Bernanke either allows Twist to end on the 30th with no replacement program or he extends Twist by a few months.  Either way, no new LSAP.  Not with the S&P where it is and Europe "being fixed."

RationalPrepper's picture

That's what I'm expecting as well, with lots of jawboning about "be ready to ease if conditions deteriorate further."  I think conditions will deteriorate, and new easing is announced by the end of August.  That's how I'm, I mean investing.

devo's picture

If anything they'll just extend twist.

Anything big enough to move the market will also destroy the market (likely via higher gasoline prices).

razorthin's picture

Or too much gold suppression.


The Swedish Chef's picture

Mark my words: there will be no new programs announced tomorrow.


The usual crap about accomodative policies of course, but no new overt printing. Twist will end and nothing will replace it. Plan accordingly.

CrashX's picture

I simply do my best to help my Mom care for her retirement. Someone here was kind enough to advise me a few years ago for her to pull out of a an extremely volatile stock market and put half her money in gold. She failed to act on the advice at the time (about two years ago) based on her "generational" belief in the "strength" of the US. She felt it would be un-patriotic, a belief she has finally abandoned. 

At any rate, I'm guessing she missed the boat - but if I were to advise her to place half of her life savings in physical gold, what pricing would you gurus suggest as a "buy"?

I've read both here and on other independent sites that we might be looking at a gold "bubble" - that $1600/oz is extremely over-valued.

Anyway, any advice would be greatly appreciated. Buying the physical gold would be a long-term investment, to be stored in a security deposit box. Minor fluctuations aren't a huge concern - but if the price were to decrease by half, I would be a very "bad" child. Thanks again.  

devo's picture

1550 seems like a floor.

But, that can break on "bad news" like no printing or an overall crash (see 2008). So, depends on your long-term thesis. I think most here believe we'll default through printing. If you believe we'll default in some other way you probably would be better off with a different asset, though gold will do better than cash in any scenario.

Gold could be the government's solution to the debt. If they reprice it (much much higher), they could repay debts.

Also, missed the boat? These long-term cycles are 20-25 years. We're only in the 12th year. Gold might have gotten too hot last year, but all the printing since then has consolidated it.

CrashX's picture

Thanks - I read that the "buy" would be when it hits 1525? From what I understand, she's going to pay a retail premium to take possession of the actual gold. 

Long term would be a guesstimate of about 10 years when the gold might need to be cashed out to pay for her long-term care. The women in my family live forever, but tend to require assisted living for the last decade or so. 

Thanks again for the help and advice. If the USD is expected to "hold", she's fine. The worry - which I've explained to her and it's finally "gotten through" - is that there's no end to the printing presses. 

Beam Me Up Scotty's picture

Why sell it to pay for long term care? If you don't have any assets the gubbamint will pay for your long term care. Best to divest yourself of all assets 10 years before you go to the nursing home.

devo's picture

I'd be weary to invest an elderly person's money in gold since they need the income stream/liquidity. Maybe only allocate 10-15% in gold, and average into that position on dips (since nobody knows how high/low it will go). There are low premium coins out there, and you can buy from locals at spot if you know how to test the gold.

The USD is not expected to hold. There are two ways out of debt: hyperinflate or default (though I guess a third could be repricing gold). The FED has choosen hyperinflation. Once you're at 0% interest rates it is impossible to raise them as the outstanding interest on debt costs too much. China will dump treasuries at some point, too. That is a huge influx of dollars. Dollar is going much much lower if not to zero, but that might take another 10 or 20 years.

Realize gold can go way down, but it's all about purchasing power, so you need to ask if everything else is going down even more. Also, PMs are volatile and sensitive. Really need to think long-term and make sure it's right for this person you're investing for.


AlamoJack's picture

Don't forget about legislative risk - ie LTCG long term capital gains tax on gold might be "re-legislated". What is it today? If you buy US Golden Eagles which are minted as $50, are they culpable to gains tax on sale??

devo's picture

Yes, this might be the biggest risk, though I think if they try to do that they'll just create a massive black market/barter system.

financial apocalyptic contagion's picture

maybe its pricing in the lack of effect QE3 will have, even before Qe3 occurs

these market realizations have been happening exponentially quicker over the past year. it took 3 days for the euphoria of the spanish bank bailout to dissapear last week, maybe the VIX has started to price in effects of events that haven't even occured yet.

or this cali strand is too potent for me

Balmyone's picture

Is Ben Bernanke a man of conviction or not. He has repeatedly bashed policy makers during the depression, and Japan during the 80s and 90s and 00s, and 10s, that they needed to do more.

Is he all full of hot air, or is he the Helicopter Ben whose image he so carefully cultivated before becoming Fed Chairman conveniently when the biggest deflationary event of my lifetime occured.

Its pathetic how stocks and commodities - outside precious metals - are surging before tomorrow's 12:30 announcement.

Be consistent Ben and PRINT. PRINT LIKE YOU MEAN IT. Let's get this charade over with.

razorthin's picture

The action in PMs relative equities makes me think that the suppression pedal is indeed to the metal because he does in fact plan to ease.  Technically, I see a very tight coiled spring with enormous potential energy.

Stuart's picture

I'm expecting another FOMC flop and considerable market disappointment tomorrow.   Markets are being primed for raping by "Da Boys".


TheCanimal's picture

What about the children?