Precious metal volatility
The month of August broke the two-month stretch of gains for precious metals. Gold, silver, platinum, and palladium all fell sharply. They saw losses of 3.7%, 9%, 9.3%, and 6.1%, respectively, on a 30-day trailing basis. The losses in platinum and silver were higher than gold and palladium.
The implied volatility in silver stood at 25%–30% in August. For gold, it was about 15%–17%. Platinum’s implied volatility was 18%–20.5%, closing at 27%. The call-implied volatility figure measures the change in the price of an asset with respect to the change in the price of the call option.
Although overall volatility was less compared to the past few months, the rate-hike phenomenon added to uncertainties surrounding precious metals.
August retreat
The fall in precious metals during August is attributed to the fear of an interest rate hike by the Fed. Funds that follow gold and silver such as the SPDR Gold Shares and the iShares Silver Trust fell 3.4% and 8.8%, respectively, following the returns in their respective metals.
Mining shares that encountered the highest losses in August include First Majestic Silver, Yamana Gold (AUY), and Primero Mining (PPP). These three shares fell about 32.8%, 30.2%, and 34.5%, respectively, on a 30-day trailing basis. Combined, they make up about 5.5% of the changes in the VanEck Vectors Gold Miners ETF.
Fed fear
Fed Chair Janet Yellen said on Friday, August 26, 2016, at the annual Jackson Hole conference that the case for higher rates was strengthening. Vice chair Stanley Fischer later suggested that a rate hike could come as soon as September. He added in an interview on Tuesday, August 30, 2016, that the US job market is nearly at full strength. This optimism is negatively playing on gold.
