Gold volatility is subsiding how about prices?

Gold, spot price and annual volatility, monthly, 2002 to 2012

Gold, spot price and annual volatility, monthly, 2002 to 2012

Like everyone else I’ve been watching the price of gold but I’ve also been trying to look a little deeper, specifically at the annual volatility of prices for some insight. The chart above shows the spot price of gold (black line, axis on left) compared to the annual volatility of prices (red line, axis on right).

Since the start of 2012 we’ve seen annual price volatility fall sharply, from 10.65% in January to 6.39% in April even as the spot price of gold has increased modestly from $1,560/oz in January to $1668/oz but whats it all mean?

Well, we do see periods of relatively low volatility but these nadirs historically have been followed by sharp increases in volatility followed by price gains. Of course that was then and this is now, but lets look at the fundamentals: the Eurozone situation is getting worse, with Netherlands joining Spain in throes of crisis. In the United States there is increased talk of QE 3, even as the ECB completes yet another phase of LTRO, or the European version of Quantitative Easing.

More money, more money, more money. Governments just can’t help but print more money. And that’s bullish for the price of gold.

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