Gold Volatility Rises 12% As Market Liquidity Drops

By Kitco News

The CBOE Gold Volatility Index (GVZ) has risen more than 11% since the start of the session Friday as market liquidity dries up, said analysts.

According to data from the CBOE, which is delayed 15 minutes, as of 11:54 a.m. EST, GVZ is at 23.80, up 2.56 points or 12.05% on the day.

George Gero, vice president and precious-metals strategist with RBC Capital Markets Global Futures, said that he is not surprised that volatility is up sharply as funds have been fleeing the marketplace in the last few days.

Gero noted that open interest in gold has dropped by about 10,000 contracts. He added that right now there is no clear direction in the gold market so investors are sitting on the sidelines.

“You don’t want to be short and you don’t want to be long because you don’t know what is going to happen in December,” he said.

He also added that some funds are probably exiting losing positions to square their trading books, showing profits and losses, ahead of the year-end.

Bart Melek, head of commodity strategy at TD Securities, said that the thin trading could be related to the weaker commodity prices as a result of the sharp drop in oil.

“I think there are a lot fewer petro dollars in the marketplace chasing assets,” he said.

He added that he is expecting to see “thinner markets,” with increasingly low liquidity, in the near-term as uncertain rules the marketplace.