In turbulent and uncharted times, perhaps reviewing historical records may provide a compass for the future. For example, in the 21-month period after the October 2008 volatility event, from November 1, 2008, to July 31, 2010, gold returned 61.3% on a cumulative basis, outperforming the S&P 500’s 19% cumulative return. However, even in today’s low inflation period, we have seen high gold returns. Second, gold bullion on average had a cumulative total return of 27.9% for the 21-month post-spike period, gold miner equities had a cumulative return of 37.1%, while the S&P 500 had a 26.7% cumulative return.Īfter the April 1978 volatility spike event, spot gold enjoyed a 280.9% cumulative return in the 21-month post-spike period, a high inflation period, from May 1, 1978, to January 31, 1980. More generally, we studied gold performance around 15 volatility events for the period from February 1, 1973, to April 30, 2020. First, note that spot gold had better cumulative returns than US equities, on average, during a volatility event, highlighting gold’s defensive properties. Going back to 1950 we studied 26 volatility spike events.ĭuring the recent two-month COVID-19 volatility spike event, spot gold returned 1.6% while the S&P 500 was down 19.6% (as of March 31, 2020). In our study the two-month period, February and March 2020, is defined as the volatility event. For example, March 2020 is labeled a volatility spike month as the average volatility level increased by more than 50% in comparison to the average volatility in January. In this paper we examined the performance of stocks and bonds before, during and after sharp increases in equity market volatility. We define a volatility spike month as one where average daily equity volatility for the month increases by at least 50% over the average daily volatility two months earlier. To answer this, we use a research framework developed in a 2018 IAS article, When the Dust Flies: How Volatility Events Affect Asset Class Performance. After our recent blog Spot Gold and Gold Miners Are NOT Two Sides of the Same Coin (May 21, 2020), investors have inquired about how gold has behaved around volatility spikes. Specifically, how might gold perform both during and after the dramatic increase in volatility experienced in March 2020?
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