Perhaps one of the more surprising charts of the last few years has been that of the CBOE gold volatility index. This morning gold vol fell to 8.75, almost half that of the S&P500. Much to the chagrin of precious metals dealers who make a living off of transactional activity, both the buy and sell side have dried up in this low vol environment. Sales of United States Mint gold and silver eagles, typically used as the barometer for domestic retail demand, are both down over 50% peak to trough.
Why is this? I think the answer is two-fold. First, despite jaw-boning on trade and flare ups in the Middle East, the world is in a relatively peaceful state. While tensions may be elevated, and trade wars the talk of pundits, military force has been limited in scope. Second, the markets continue to churn higher, and with low inflation, low rates, low unemployment, and rising asset prices among nearly all asset classes, there is very little fear or economic anxiety in the system. These contribute to the perception of a low-risk environment, which is generally a soft environment for gold.
I don’t think it will stay this way forever, as long periods of low volatility generally coil into violent moves. However, it may take an event of some magnitude to ignite a rotation into gold as a flight to safety.