Gold inter-market: Back in sync with VIX, set to test $ 1300 again?

Dhwani Mehta FXStreet

Gold moved-off two-year lows and now continues to hover in a narrow range around $ 1320, finding strong upside barrier at $ 1325 mark.

The latest price-action witnessed in the gold prices is worth noting, as over the last hours the drop in the prices from daily tops ahead of 1225 levels, can be well justified by a sharp fall in the volatility index (VIX), which gauges the risk trends in the markets.

The CBOE Volatility Index (VIX) dropped sharply to fresh four-day lows at 17.51, down -6.50% on the day. This indicates that the correlation between both the bullion and VIX is getting stronger again, as against a complete disconnection witnessed between the two over the past few weeks.

Moreover, a gradual rise in the US equity futures amid persistent risk-on sentiment on stimulus hopes from the central bank also appears to cap the recovery in the yellow metal and subsequently dragged the prices lower towards $ 1315 levels. While a minor-reversal staged by the US 30-year treasury yields also dulled gold’s appeal as an alternative investment asset.

Going forward, it remains to be seen how long the metal and VIX continue to move in sync, as underlying Brexit concerns continue to underpin the safe-haven bids for gold.

Author

Dhwani Mehta

FXStreet

Residing in Mumbai (India), Dhwani is a Senior Analyst and Manager of the Asian session at FXStreet. She has over 10 years of experience in analyzing and covering the global financial markets, with specialization in Forex and commodities markets.

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