Is Monday's volatility a signal or just noise?
Though just two days in, this week is already shaping up to be one of the most volatile for gold and silver in a while. On Monday, prices briefly plummeted; gold hit a low of $1,143, while silver touched a five-year low at $14.29. Then, just as fast as it fell, the duo zoomed back up, spiking as high as $1,222 and $16.81 for gold and silver, respectively.
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As is often the case during volatile moments in the market, there were numerous explanations for the day's furious trading action. One such explanation centered around oil; gold and silver simply followed oil down--and then back up--as crude prices gyrated after hitting the lowest levels since 2009 early on Monday.
Another explanation pointed to the failure of a referendum on gold in Switzerland and a credit downgrade in Japan as sparking the volatility. Swiss voters rejected a proposal that would have required the central bank to purchase more gold, sending prices initially lower. Later in the day, Moody's cut Japan's sovereign credit rating from AA3 to A1, helping to send prices back up.
A Lot Of ‘Noise’
Then there's always the convenient "short covering" explanation that commentators like to throw around to explain any sudden, unexpected movements in the markets.
All that said, what prompted Monday's price swings wasn’t that relevant from a bigger-picture perspective. The fact is, gold has been holding near the $1,200 level for some time now, at around the same price that the yellow metal began the year.
None of the recent events--oil's decline, the Swiss vote, Moody's Japan downgrade or any other factor--has been able to break gold out of its comfort zone and ignite a consistent trend (either up or down) in prices. That makes these events essentially "noise," and gold should be considered trendless until a bigger catalyst emerges.
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