*The US 10 year Treasury yield dropped below the 1.50 mark
*The VIX index is up nearly 67% and the V2X (European volatility index) is up over 40%.
Despite some modest gains over in Asia, European markets are set to close the week in negative territory after a turbulent ride. The selloff was mainly lead due to the sharp decline in the US Treasury yields. The US 10 year Treasury yield dropped below the 1.50 mark yesterday (it has bounced back up today). Even the Japanese 10-year yield touched its lowest level since 2016 and New Zealand's 10 year yield fell below the 1% level for the first time.
Nonetheless, most of the European benchmarks are still holding on to some decent gains year to date and European markets are trying to recoup some of their losses from this week.
The jury is still out if there will be any significant performance there because geopolitical conditions have only become worse after Gibraltar decided to release the Iranian ship.
VIX Is Up Over 20% This Week
This week has been particularly about volatility and if we look at the VIX index, the picture becomes more clear when we look at the weekly performance, it is up over 20% this week. Remember, the index was up over 30% during this week. Since August 2018, the VIX index is up nearly 67% and the V2X (European volatility index) is up over 40%.
The VIX index hasn't soared this much since early January this year. The last time the index experienced such gain, the S&P 500 index scored 10% gain as shown on the chart below
Why Gold Is Above 1500?
More importantly, the gold price is trading well above the 1500 mark and the word on the street is that the Fed may cut the interest rate by 50 basis points. Of course, such a deep interest rate cut isn't priced in the gold price yet. Looking at the recent economic numbers, I do not believe that we need such a significant move. For instance, the US retail number was immensely solid yesterday. It printed the reading of 0.7 percent beating the estimate of 0.3 percent and the situation was pretty similar with Philly Fed manufacturing index which came in at 16.8 while the forecast was 10.1%.
But these numbers weren’t solid enough to push the gold price below the 1500 mark and this is mainly because investors are focused on the next week’s FOMC minutes. What is expected from these minutes is that the Fed will cut the interest rate next month again by another 25 basis points.
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