With the plethora of mounting event risks, from the end of Operation Twist to numerous elections, the possibility of QE3, the US fiscal situation, the ECB/Bundesbank battle, and China's on-again-off-again economy, it seems finding a low cost long volatility 'bet' is the best way to gather some macro protection (aside from total liquidation that is). Earlier, we noted how expensive S&P 500 implied volatility had become relative to its realized vol - suggesting that being long S&P vol is not a low-cost option. However, as Barclays points out, GLD (and slightly less so SLV) is among the cheapest (defined based on percentiles of implied vol over realized vol) volatilities available. SPY vol is trading at a 60% premium to its realized vol while GLD is trading at a 20% discount. While the main risk to being long GLD volatility is a continued drift lower in realized vol, the current realized volatility is near the lower-end of its empirical range and there appear to be a number of catalysts, as we noted above, for gold (or hard assets in general) to break from its range-bound YTD performance in price and volatility (either up - more likely in our view - or down).

The lower pane shows the relative discount (or premium) of implied vol to realized vol for GLD - currently at a 20% discount which has historically been a relative extreme (though we have been here for a few months as the range-bound market plays out). The upper pane shows what happened last year with price (green) and implied/realized volatility (black/orange) as events started to unfold mid-year.

And across asset-classes, Barclays notes GLD, SLV, and TLT volatility looks 'cheap' while XLP, XLK, XLV, and SPY appear relatively rich (in terms of implied vol)...