What Is Volatility?
Volatility is a measurement of how varied the returns of a given security or market index are over time … In most cases, the higher the volatility, the riskier the security.[1]
The notion of volatility as it relates to equities is associated with a rapid increase and/or decrease in share prices. These price changes can be sudden and unexpected producing anxiety and uncertainty which often causes investors to sell and/or dump their shares.
A recent Business Insider report on “Risk vs. Volatility” maintains that while the two terms are often used interchangeably, they’re not the same. Simply stated, “risk” represents the possibility that an asset won’t live up to its expected return while “volatility” reflects the degree of its short-term value fluctuation.
Examples of Low-volatility investments are:
- Highly rated corporate and municipal bonds
- Treasury bonds, bills, and notes
- CDs
- Gold and silver commodities
Examples of High-volatility investments are:
- Cryptocurrencies
- Exotic currency pairs
- Energy commodities
- Agricultural commodities[2]
Low volatility investments tend to offer a more consistent return over time while high-volatility investments typically offer higher returns but come with increased risk.
Economic Uncertainty
Financial markets crave clarity and predictability which helps with critical decision-making with respect to investment choices. When there are a lot of economic variables and unknowns in play — it impacts the behavior of businesses, consumers, and even governments. Economic uncertainty can undermine spending, investing, and overall financial optimism.
One of the best-known gauges of uncertainty is the Economic Policy Uncertainty Index which, according to the European Commission, shows a dramatic surge in uncertainty and risk over the last few years impacting international commerce, global investment, and economic growth:
“Economic policy uncertainty refers to the risk associated with undefined and unpredictable future policies and regulatory frameworks, which can have an adverse impact on the investment and spending decisions of businesses and households. The Economic Policy Uncertainty index developed by Baker, Bloom and Davis (2016) shows a high level of uncertainty in recent years, likely reflecting the succession of major shocks and structural challenges to which the EU economy has been exposed. Econometric evidence confirms that the heightened economic policy uncertainty weighs on economic activity and, in particular, on investment.”[3]
Uncertainty is not an easy thing to measure, and the index above incorporates a broad swath of quantitative as well as qualitative data including news feeds, financial stories, and economic reports to cull and capture the disruption of everything from pandemics to politics — to trade wars and natural disasters. Ironically, The Wall Street Journal recently dubbed the U.S. president’s tax and trade policies, “The Trump Economic Uncertainty Principle.”[4] Indeed, Trump’s Liberation Day announcement sent financial markets into a tailspin as the S&P fell 12% and the Dow Jones sunk 11%.
The Infamous Earnings “Miss”
When companies announce their quarterly earnings, they’re sharing their financial performance against market and analysts’ expectations. And when they “miss,” or underperform forecasts, it triggers a loss of confidence in their corporate model and concern for the health of their business and overall stock trajectory.
In outlining the influence of earnings reports on the market and investor sentiment, IG.com states the following:
“Good earnings can rocket stock prices up. Traders rush to buy before it rises more. New investors may join in, betting on continued success. But bad earnings make prices plummet just as quickly as folks sell to cut losses. That spooks more people into selling fast. The challenge is working out if news will thrill or disappoint investors. If you think company results will beat expectations, you might consider getting exposure before the surge. If an earnings miss is projected, you might want to get out of a position you already have or even short-sell the stock. Big surprises, whether up or down, mean volatile prices as investors instantly react. By correctly predicting if investor hopes will be boosted or let down, savvy traders can put themselves in a position to gain.”[5]
So, when it comes to understanding volatility triggers, earnings matter — but “earnings surprises” actually matter more, particularly when a company’s performance falls short of expectations. An “earnings miss” or a negative surprise, raises concerns about fiscal health and profit model. This directly impacts investment decisions and can trigger a panicked sell-off and a dramatic spike in volatility.
Geopolitical Risks and Gold
- The Oil Price Shock of the 1970’s
- The Dot-Com Era
- The Global Financial Crisis of 2008
- The September 11th attacks
- The Corona Virus Crash
- The Russian invasion of Ukraine
- The Israel Hamas War
- The Advent of AI
These are examples of worldwide geopolitical shocks that can threaten global stability and rattle the markets. Most wealth management firms list geopolitical events as among their clients’ top concerns due to their impact on market performance and portfolio growth.
“Geopolitical events, such as elections, wars, assassinations and terrorist attacks, can significantly impact stock market performance across various sectors. This influence typically stems from the uncertainty these events introduce into the global economic environment. For instance, elections can generate market volatility due to uncertainties about future government policies that could influence economic growth … Geopolitical tensions and disputes can disrupt international relations and economic partnerships, leading to market uncertainty and volatility. The stock market’s initial response to these events is often to decline as investors deal with fear and work to understand how an event may impact future economic growth.”[6]
Ongoing geopolitical tensions not only impact commodity prices but can also disrupt trade, supply chains, and access to critical resources like oil, gas and rare earth minerals. This can spike inflation, suppress economic growth, and wreak major havoc on Wall Street. This is where gold, above all other commodities, functions as a safe haven amid market volatility.
According to The Economic Times, in 2025, gold is having a “geopolitical moment”
“Historically, gold has served as a hedge against geopolitical risk, and the current crisis has reaffirmed its role as a refuge in turbulent times. While the Israel-Iran war has dominated headlines, the ongoing conflict between Ukraine and Russia continues to exert pressure on global markets. The prolonged war has disrupted energy supplies, strained European economies, and contributed to inflationary pressures worldwide. These factors have reinforced the bullish outlook for gold. Investors are increasingly wary of prolonged instability and its implications for global growth, prompting them to diversify away from riskier assets and into gold.”[7]
Markets become more volatile in certain environments than others, particularly amid economic insecurity, uncertainty and heightened global conflict. This is when the “herd mentality” kicks in, and it is not to be underestimated — on Wall Street, the herd drives volatility like nothing else and gold is perhaps history’s most effective hedge and greatest beneficiary.
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[1] https://www.investopedia.com/terms/v/volatility.asp
[2] https://www.businessinsider.com/personal-finance/investing/risk-vs-volatility
[3] https://economy-finance.ec.europa.eu/economic-forecast-and-surveys/economic-forecasts/autumn-2024-economic-forecast-gradual-rebound-adverse-environment/cost-uncertainty-new-estimates_en
[4] https://www.wsj.com/opinion/jobs-report-labor-department-hiring-donald-trump-trade-policy-federal-reserve-02841b3d?
[5] https://www.ig.com/en/learn-to-trade/ig-academy/shorts/corporate-earnings-reports
[6] https://www.bankrate.com/investing/how-geopolitical-events-impact-stock-market/
[7] https://economictimes.indiatimes.com/markets/commodities/views/bombs-battles-bullion-why-gold-is-having-a-geopolitical-moment/articleshow/122001699.cms
