Gold risk reversals hit fresh 7-month low as on put demand

• Gold is losing its shine, having hit a one year low yesterday.
• The demand for bearish bets (put options) continues to rise, risk reversals hit fresh 7-month low.  

Currently, gold (XAU/USD) is trading at $1,228, having hit a one year low of $1,226 earlier today.  

The yellow metal ran into offers during the overnight trade and fell below the key support of $1,234 (50-month MA) as Fed’s Powell’s Senate testimony was mostly upbeat, driven by positive trends in labor market, inflation and economic growth.

The Fed head added words “for now” while discussing Fed’s plans to gradually raise interest rates, to indicate that the central bank is not on autopilot. However, the caveat failed to put a bid under the yellow metal.  

Further, the solid demand for gold puts indicates the investors are likely expecting a deeper drop in the safe haven yellow metal.  

At press time, the one-month 25 delta risk reversals are being paid at -0.8 XAU puts – the lowest level since December 22. The negative number indicates the implied volatility premium  
(or demand) for gold puts is higher than that of gold calls.  

Gold Technical Levels

Resistance: $1,234 (50-month MA), $1,245 (10-day MA), $1,247 (200-hour MA)

Support: $1,226 (overnight low), $1,214 (May 2017 low), $1,200 (psychological level)