Gold: Has the rally got legs?

Gold prices clocked a low of $1205.02 on July 10 before a technical recovery amid broad based USD sell-off helped the traditional safe haven asset recover to $1233 levels (last week’s high). As of now the metal is trading around $1230 (200-DMA) levels. 

The CME data shows the Open Interest in the gold futures dropped by 2807 contracts on Friday, which suggests the sharp gains were largely fuelled by the withdrawal of liquidity/short unwind. 

However, in the options space, we see a surge in the open interest in the OTM calls as on Friday (+438 contracts). The big build up was largely seen in $1230 call and $1235 call. Moreover, $1235 call is now ATM.  The OI in the ITM Put options and the OTM Put options fell 22 contracts and 156 contracts, respectively, which is indicative of the bear market exhaustion. 

The options activity suggests that the investors are expecting the technical recovery to extend further, possibly to 100-DMA stationed at $1247 levels. 

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