Capital V For Volatility

As we pointed out yesterday the Volatility Index (VIX) has been going crazy. It is up 34% this week, meaning there is much more implied volatility in markets of all kinds.

At first glance, one would think that crude oil itself is the cause of this volatility. In fact, oil prices are being affected by a host of issues across the globe. Analysts are asking whether a new Greek debt crisis that would upset all of the E. U. is a factor. The jerking to a stop (and into reverse) of the Japanese economy may be to blame, too. Russia’s instability is certainly weighing in.

Interestingly, the spike in volatility has helped to revive trading action on most exchanges for most financial products. This comes at a time when holidays and end-of-year considerations usually drive the action.

Demand for oil is slightly cool, but supply continues apace and that is a problem for the energy sector. The dollar began to recover today, so oil fell sharply again.

Higher U.S. November retail sales than expected helped fuel an equities rally. That dragged the buck up with it. Retail sales stats provided the message Wall Street was waiting for – energy only makes up 12 to 13% of the S&P 500, after all, they seemed to reason finally.

Other sectors, too, will benefit from lower oil and gas, as will the consumer who will spend his/her money elsewhere. Travel, durable goods, and even housing will gain. Also, lower gasoline and home heating costs give consumers a sense of well-being, which often translates into action.

All this has had a curious effect on gold.

Today’s dollar power-up pushed the price of gold down, barely enough, though – when matched against regular trading activity, which went positive – to give the yellow precious metal a small loss for the day.

Food for thought: the Russian ruble has lost around 45% of its value this year. Not only are revenues down for Russia because of the fall in energy prices, people are finding it increasingly harder to buy necessities. Something’s got to give. Let’s hope the release is not in the form of a war in Ukraine.

Demand for physical gold has been coming from Russia, China, and South America. It should tell us how those people in those areas are viewing their economies.

Wishing you as always, good trading,