Perhaps I was a bit too hasty in mocking bears for their impotence in yesterday’s Beat the Bell. It turns out they just needed some time to sharpen their swords before striking. And strike they have, with fury. Thursday was a veritable bloodbath with risk assets across the board finally receiving their comeuppance. The weak hands abandoning equities found refuge in a variety of places, but it’s gold stocks that deserve our attention today. The Market Vectors Gold Miners ETF (NYSEARCA:GDX) popped 2.12% making it one of the few green ETFs amid a sea of red.
GDX is also completing a multi-month triangle pattern that could continue to propel the precious metal fund higher. We’ll delve into that in a moment, but first, a few comments on Thursday’s beatdown.
The Volatility Beast Awakens
For months the the CBOE Volatility Index has been dead as a doornail. Last month’s drop to $8.84 marked a record low for the popular fear gauge. This year has been a boon for volatility sellers. Thursday their mettle was tested, big time.
By day’s end, the VIX surged 44.37%. The fact that it closed right at the high of the day means traders were panicking all the way until the closing bell. While we may see a continued ramp in volatility tomorrow, I suspect it will top out shortly. This type of fear typically signals that a rebound in stocks is nigh.
While those who entered yesterday leaning a bit too bullish are licking their wounds, there are a few silver linings to volatility’s awakening. For starters, option prices have exploded, which means you can now sell puts and calls for some of the highest premiums of the year. This is a welcome development for those tiring of the paltry premiums available of late.
Safe Havens Surge
The capital fleeing stocks found its way into two classic safe havens — precious metals and treasury bonds. The SPDR Gold Trust (ETF) (NYSEARCA:GLD) was up 0.74% while the iShares Silver Trust (ETF) (NYSEARCA:SLV) rallied 1.25%. Meanwhile, the iShares Barclays 20+ Yr Treas.Bond (ETF) (NASDAQ:TLT) popped 0.85%. While bonds probably deserve a solid analysis on their own, we’ll save that for another time. It’s metals that command our attention today. To be fair, the rally in GLD wasn’t all that impressive given that the VIX skyrocketed almost 50%.
But that’s why GDX is interesting. It’s essentially high beta gold. That is, gold stocks move with the yellow metal, but have quite a bit more pep in their step. Thursday is a prime example. While GLD climbed 0.74%, GDX jumped 2.12%. Gold stocks deserve the spotlight today not just because of their elevated volatility, but also their healthier price chart.