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The Hard Assets Alliance Blog

This Index Almost Always Shows When Gold Will Rise

Absolutes are rare in investing, but this one comes pretty darn close.

Most investors instinctively know that gold tends to rise when bad news hits the economy. Gold is essentially the “fear” trade. When fear spikes, investors flock to the precious metal and push the price higher.

One of the better measures of fear is the VIX (CBOE volatility index). It is a widely used measure of market risk and is often referred to as an investment “fear gauge.”

So, it shouldn’t be too surprising that when the VIX jumps, gold does, too. And that’s exactly what’s happened since 2001.

Look at how gold has performed every time the VIX exceeded a reading of 30.

Date VIX Gold’s Performance
6 Months Later
9/28/2001 31.93 3.2%
10/31/2001 33.56. 10.3%
7/31/2002 32.03 21.3%
8/30/2002 32.64 11.9%
9/30/2002 39.69 4.3%
10/31/2002 31.14 6.5%
9/30/2008 39.39 5.6%
10/31/2008 59.89 22.7%
11/28/2008 55.28 19.7%
12/31/2008 40.00 5.0%
1/30/2009 44.84 2.8%
2/27/2009 46.35 0.9%
3/31/2009 44.14 9.6%
4/30/2009 36.50 17.7%
10/30/2009 30.69 12.8%
6/30/2010 34.54 14.4%
8/31/2011 31.62 -7.1%
9/30/2011 42.96 2.7%
Average Return: 9.1%

Gold went down six months after the VIX hit 30 only once. All the other 17 times gold was higher, and it rose by double digits eight of those times. The average return was 9.1%.

The VIX hasn’t hit 30 since September 2011. But the history suggests that when it does—and sooner or later it will—the gold price will rise.

It Pays to Hold Gold in This Environment

Why might the VIX jump? There are a lot of reasons, as hedge fund manager Dan Tapiero points out in this short video. The biggest catalyst right now—and it’s one we investors have zero control over—is the growing trend of negative rates.

This largely accounts for why gold has done well this year so far, and yet this trend continues to grow. However it ends, it’s not likely to be kind to investors.
Enter gold.

Learn why gold is the best hedge against this monetary turmoil

See why this highly successful hedge fund manager says that more turmoil is ahead and how gold can safeguard your portfolio.

 

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