Written by Adrian Ash

Gold prices slipped back towards yesterday’s 1-week low of $1321 per ounce Tuesday in London even as world stock markets fell with commodities and the US VIX volatility index rose once again.

Gold prices rallied late Monday after US Federal Reserve governor Lael Brainard called for further delays to a second Fed rate hike, rather than switching from ‘dove’ to ‘hawk’ ahead of next week’s September meeting and decision.

Asian stock markets failed Tuesday to extend Wall Street’s post-Brainard rally, and European equities reversed earlier gains as New York re-opened.

Government bond prices paused their rally after Friday and Monday’s hard sell-off, capping 10-year US Treasury yields at their highest level since the UK’s shock Brexit referendum result of late June at 1.67%.

“Wall Street’s ‘fear gauge’ has jumped to the highest since late June,” notes Jonathan Butler, precious metals strategist at Japanese conglomerate Mitsubishi, referring to the ‘Vix’ volatility index of US equity options traded on the CBOE exchange.

“[Yet] gold has failed to benefit much…perhaps indicating that despite an equity market sell-off many investors see gold as susceptible to central bank policy.”

Gold Prices

Volatility in US equities remains “unsustainably low” says finance giant Blackrock’s head of asset allocation Russ Koesterich. “[So] I would be reluctant…to sell some or all of [my] holdings in the precious metal.

“Changes in the VIX Index – a measure of US equity volatility – explain nearly 20% of the variation in the relative return between gold and the S&P 500 Index,” Koesterich explains, adding that on data back to 1994 “when volatility rose, gold outperformed the S&P 500 price return by roughly 2% on average.”