As we mentioned a few weeks ago, gold trades in a boring fashion, but keep it on the radar as a possible fear hedge. Markets are gripped by fear again, and we have gold surging, taking out the negative trend since February highs.
We have not seen such an aggressive move higher in gold in a very long time.
1300 is a huge level and if we take out that level, things can get very interesting to the upside.
For several years, the fear hedge logic of gold had disappeared, but we saw a comeback of gold as a fear hedge during the autumn crisis. The below chart is showing gold (white) versus the VIX index (orange).
Gold can trend, but over time, VIX can´t trend for obvious reasons, hence the slight “gap” between gold and VIX during the past few month’s equities market bull. It is therefore interesting to see gold catch such a strong bid today as markets are crashing hard. Chasing VIX longs here feels like a very late trade, gold on the other hand is starting to look interesting. Look out for further gold upside if fear continues.
Source, chars by Bloomberg