So gold is surging today, blasting above $1308, as the currency debasement trade continues.
But can it really be this easy?
David Goldman notes something this interesting:
What’s wrong with this picture?
It shows empirical (blue line) as well as implied (tan line) volatility for GLD, the gold-tracking ETF. 7.5% is the lowest empirical volatility I recall; and at 16%, the implied volatility is much lower than that of the S&P 500 itself. Gold is a hedge against currency breakdown (not so much against inflation, but that’s a longer story). A hedge is supposed to be volatile, much more volatile than the underlying (so that owning a little of it protects you against a big move).
If stocks were marching up day-after-day, and volatility were trending down, we’d wonder if things were just too quiet to be comfortable, and if stock investors weren’t due for some serious pain.
So we’ll wonder the same thing here.