Friday’s drop for the United States Oil ETF (USO – 25.58) was the seventh largest in history. The history is a bit limited, just going back to April 2006 when the fund was introduced. OVX was bracing for a move closing Wednesday in the mid-30’s so when the markets opened on Friday OVX didn’t move too much. Using OVX’s closing level of 36.02 on Wednesday, a single day one standard deviation move on Friday would be a move of 0.63. USO dropping 2.32 can be converted to about a 3.7 standard deviation move which is not unheard of in the markets when a news event results in a big price move. Do note on the chart below showing USO’s weekly performance over the past 12 months that this past week was just an acceleration of a move that has been in place for some time.
Gold volatility rose on Friday in front of it is own potential market moving event as this weekend the Swiss go to the polls to vote on a referendum that is being watched closely by gold traders. The vote is a referendum that could result in the Swiss National Bank having to increase their holding of gold. The potential increased demand would be expected to provide price support for up to five years. GVZ was up last week in front of this vote, despite the expectation that the referendum will not pass.
Taking a look at the curves tells a couple of different stories, which has been the case for a few weeks now. GVZ prices are in backwardation, but the spot market moved much more than the futures last week. This would be based on the expectation that volatility will drop after the election this weekend. OVX moved up and the curve remained in backwardation with a very uniform shift across the whole term structure. Take that as uncertainty and volatility in the price of oil is not expected to end any time soon.