As the global economy continues to face geopolitical challenges and concerns about inflation, gold volatility is surging. According to UBS Securities and Treasury (UBS S&T), gold vols have ramped higher on further lows in spot prices and escalating tensions ahead of the release of hot CPI data. The 1-month gold volatility is currently around 25.5, up over 3 vols from Tuesday.

While realized volatility is lower than current implied volatility, there is a risk of a sharp sell-off in front-end vols on higher spot prices. As a result, skew is pushing to new highs, with the 1-month risk reversal at 3.5 vols in favor of puts, compared to flat a month ago and .5 for puts just last week.

The recent surge in gold volatility can be attributed to a combination of factors. Geopolitical tensions, particularly those related to the ongoing conflict in Ukraine and the Middle East, have contributed to investor nervousness and a flight to safety. Additionally, concerns about inflation are on the rise, with the upcoming CPI release expected to provide further insight into the state of the global economy.

Investors are increasingly turning to gold as a hedge against inflation and geopolitical risks. As such, the yellow metal has seen increased demand, driving up prices and volatility. The recent surge in gold volatility is likely to continue in the near term, as investors remain cautious and risk-averse in light of ongoing global uncertainties.