While there are obviously sellers in the gold market, there is also a
dramatic spike in demand for protecting what is still being held
(remember there is a buyer for every seller). Gold’s short-term VIX (implied volatility) has spiked to 18 month highs above 29%
but it is the steepness of the term-structure of volatility that shows
just how much protection is being sought. The difference between the
one-month volatility and one-year volatility is almost 10 vols – the
highest level of inversion (short-term risk higher than long-term) since
Lehman. It seems the market is extremely fearful of further volatility
in the short-term but less concerned longer-term. What is also
worrisome is that the last two times that Gold’s VIX was this much
higher than the S&P’s VIX was June 2006 (when the first hedge funds
started to implode from Subprime) and Sept 2008 (Lehman). It appears that gold volatility is signalling counterparty risk concerns once again.Read More @ ZeroHedge.com
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