Gold - Puts in demand, Vols hit two-month low

The failure to hold above the 50-day moving average on Friday led to a drop of $25 in gold (XAU/USD) prices.

The yellow metal hit a 6-day low of $1281.50 on Tuesday as the talk of a more hawkish Fed President put a bid under the US dollar. Currently, the metal is trading around $1286 levels, having posted a daily high of $1288.93 and low of $1285.50.

Risk reversals drop, Vols near two-month low

The chart above shows-

• One-week 25 delta risk reversals (XAUSWRR) fell to -0.75 on Tuesday; its lowest level since September 22. The recent high stands at -0.225. The decline from -0.75 to -0.225 indicates increased demand for Put options.

• Meanwhile, one-week at the money (ATM) options volatility (XAUSWO) fell to a two-month low of 8.40. Currently, it stands at 8.50.

The data indicate short-term bearish bias. Low volatility means the decline could be slow.

Gold Technical Outlook

• Gold Price Forecast: Short-term bearish bias as Put option OI spikes

Gold could re-test the 100-day moving average lined up at $1277 and may extend losses to $1260 (recent low). On the higher side, an end of the day close above $1306 (Monday's high) would revive the bullish move.