By Giles Coghlan, Chief Currency Analyst at HYCM
When VIC falls, look to gold. As long as VIX is high, look to USD.
The normal playbook is that in times of crisis, buy gold. However, although that is generally true ,it is not the case when there is a really strong crisis like we have now. In these instances gold sells off.
Look at the chart below and you can see that when the VIX (the fear indicator) is highly elevated, like in 2008/09 and 2011, gold moves sideways or downwards.
And in the late 90's:
Can you see the impact? Now at the moment people are liquidating all their positions and converting into cash.
So, if you are looking to buy gold, wait for the VIX to drop.
What about the dollar and the VIX?
Now the USD is bid as a safe haven when the VIX is high. So, if the VIX remains elevated then the Dollar index (USD) is bid.
The above is why the assertion 'when the VIX falls look to gold, when the VIX is high look to USD' has been made. The new swap lines will plug the dollar gap eventually, but not yet as the market has more panic to come. We are not out of the woods yet.
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