Volatility On The Rise As Gold Being Bid Along With Other Safe Havens

It is really no coincidence that volatility is on the rise in the markets, and that it comes slightly after the end of Quantitative Easing.

The VIX is a proxy for volatility, and its chart shows a structural rise over the last 4 months. The chart below indicates a pattern of “higher lows” towards the end of 2014. It all started with the sell off in October, when the VIX rose to a level not seen since the summer of 2012.



Without any doubt, there is a correlation between the end of the extreme QE program of the U.S Fed, the collapse of oil and other commodities (think of Dr. Copper in the first place), and the rise of volatility in the markets.

Another phenomenon should attract the attention of readers and investors. In particular, along with the above mentioned trends, the demand for safe haven currencies is considerably up. Along the same lines, the demand for gold is going up.

To illustrate that, we created a view of several safe havens in one chart. Below is a collection of two safe haven currencies (the Swiss Franc and the U.S. Dollar), 20 year Treasuries (TLT), and gold. We are aware that, given the massive debts by the U.S. government, it is hard to consider the Dollar a safe haven. Our stance is that “the market” currently still considers the Dollar a safe haven, whether we agree with it or not. The point is that the Dollar is still the best performing currency relative to most of other currencies.

As the chart shows, the U.S. Dollar has started a steep rise right after the end of the QE program (towards the end of last summer). Bonds, however, were already signaling troubles since early 2014. The major divergence between the Dollar and U.S. long term bonds appeared to be a valid signal from the bond market, not a coincidence.

Interestingly, gold has been holding up quite well relative to the strong rally of the U.S. Dollar.

Historically, the Swiss Franc has been considered a safe haven. Because of the semi-peg with the Euro, the Franc had lost more than 10% of its value in 2014. However, with the unpegging decision of last week, it seems that the Franc is back as a traditional safe haven, given its steep rise of late.



The key take-away here is that gold has not lost its luster, contrary to what mainstream media and pundits have been explaining in the last two years. Despite the big decline in the price of gold in the first half of 2013, gold has been holding up very well since then, and is clearly acting as a safe haven of late.


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