All of this is a mixture of facts and myths, causes and consequences, hidden motives and secrecy, disinformation, manipulation and opportunism. While I can do very little about most of those, I will try to clarify some of the facts in order to eliminate a few of the myths.
This is comparable to many stock index series and largely enough for our purpose. For the 21st century data the average of the two LBMA daily fixing prices is made. On days preceding a holiday, there may be only an AM-fix. Observe that there’s nearly a 12 hour delay between the London AM fix and the Comex (NY-Globex) close at 17:00 pm Eastern time (22:00 in London).
Volatility is defined as the standard deviation on a series of daily fluctuations. If prices were stable or if they rose or declined at a steady pace, volatility would fall to zero. The total series allows some in depth analysis on the distribution of daily fluctuations, including a long term historic volatility. This will allow checking some of the hypotheses put forward in the introduction.
Distribution analysis of daily percentage variations of the gold price D/D-1 (%)
Fig 1: Bars are 0.5% wide; the central bar with gold price variations between -0.25% and +0.25% accounts
for more than a quarter of all observations; The best fitting normal distribution (red curve) is not convincing.
‘MOMENTS’ of the Distribution (Univariate Procedure)
Distribution analysis of: D/D-1 (%)
In the right column, the excess kurtosis of 11 implies that the distribution is not Gaussian. A distribution with high kurtosis (or ‘peakedness’) has a slender top and initially drops off faster than does the corresponding Gaussian or ‘normal’ distribution with the same standard deviation. However it has fatter tails. Extreme variations are far more frequent than predicted by the Gaussian distribution. Most visually striking is the dominantly frequent number of tiny fluctuations: those smaller than +0.25% (the central bar) amount to over 25% of the total number of trading days.
Extreme swoons and rallies
|Date||POG||D/D-1 (%)||Date||POG||D/D-1 (%)|
Observations dating in the 20th century dominate the list on both sides: gold price volatility has been unprecedented in the 1970′s and 1980′s. Yet the 1990′s apparently has been a dull decade for gold traders. Singling out 21st century observations, we obtain one last couple of tables:
The 2011-2015 bear market left its footprintThe April 15, 2013 beating still stands as the worst of the century so far. What makes the April 15, 2013 swoon so exceptional is that it isn’t preceded by any significant precious metal rally, on the contrary. Nor did it happen during a stock market crisis as happened in fall 2008. Instead it was an orchestrated sell-off after several reports giving gold a bad press. Future longs were taken to the woodshed and forced to sell into weakness.
Onset and break-down of the secular gold rallyThe most stunning 10.12% rally in February 2000 followed a report which made clear the detrimental influence of generalized hedging by producers and of gold leasing by central banks on the gold price trend. The rally didn’t however break the back of the gold bear market yet: nearly all of the gains vaporized during the following months.
We find quite a few 2008 observations (both summer and autumn, over the period immediately preceding and during the culmination of the financial crisis) at both swoon and rally sides. This made volatility rise to a level unprecedented in the 21st century.
The 18 September 2008 double digit rise was the main ripple effect of the Lehman Brothers bankruptcy declared earlier that week. At that moment the global financial system seemed on the brink.
Key Gold Price levels and Dates
Evidently as exchange rates have been fluctuating, key gold price levels in other currencies were attained at different dates. Even the Aug 2011 all time high in USD may not be the all time high in other currencies.
In order for the graphs to show better detail, the period covered was split. The first graph covers the decade 2000-2009, with the onset of the secular gold bull market and ending with the 2008 breakdown during the financial crisis and the onset of the recovery:
|Fig 2: Gold price (USD/Oz): the blue graph on the left axis; Volatility of the gold price: the red graph on the right axis
(click any of the graphs to view true size)
The second graph starts in Jan 2008 and covers the final gold bull run till 2011 followed by the three years of the four year bear market.
|Fig 3: Gold price (USD/Oz): the blue graph on the left axis; Volatility of the gold price: the red graph on the right axis. -Graph running to new year 2015|
The 2016 gold recovery brought gold back into its trading range from June 2013 – June 2015. The yellow metal has been able to curb the latest leg down experienced since summer 2015, when prices dropped below $1200 without any prompt recovery back to that level. The 2016 gold recovery only has entailed a modest and temporary rise of volatility: once at its onset in winter 2016 and a second time at its culmination and break-down in summer 2016. As the following severe correction brought the yellow metal back below $1130 before any turn-around, volatility rose moderately. Since February 2017 the yellow metal keeps meandering between a hard to break $1300 resistance level and a relatively firm support at $1200. As a result, volatility is fading.
Fig 4: Gold price (USD/Oz): the blue graph on the left axis; Volatility of the gold price: the red graph on the right axis
(click any of the graphs to view true size)
As the following severe correction brought the yellow metal back below $1130 before any turn-around, volatility rose moderately. Since February 2017 the yellow metal keeps meandering between a hard to break $1300 resistance level and a relatively firm support at $1200. As a result, volatility is fading.
Back to the epic days of the 20th centuryA historic overview of volatility during the 1973-1980 gold bull market and its aftermath during the remainder of the 1980′s has been discussed before. Click the link in the paragraph title to view the dedicated article.
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