Gold one-year risk reversals hit lowest since June

Demand for gold call options has weakened over the last four weeks, risk reversals indicate.
One-year risk reversals have dropped to multi-month lows despite coronavirus fears.

Omkar Godbole FXStreet Contributor

Gold one-year risk reversals, a gauge of calls to puts on the yellow metal and a barometer of positioning and sentiment, fell to the lowest level in eight months on Monday, indicating a weakening of demand for the call options or bullish bets.

The risk reversals declined to 3.125, a level last seen on June 21, having topped out at 4.425 in the first week of January, when the US-Iran tensions had triggered a flight to safety and put a haven bid under gold.

The yellow metal is currently trading at $1,570, having hit a high of $1,611 on Jan. 8. The markets have been recently roiled by coronavirus and fears of a sharp slowdown in China's economy.

So far, however, that has failed to invite stronger demand for call options on gold, as indicated by the slide in the risk reversals.

A call option gives the holder a right but not the obligation to buy assets at an agreed price on or before a particular date. A put option is the right to sell.

A negative risk reversal indicates the premium claimed by puts (or demand) is higher than that for calls.

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Author

Omkar Godbole

FXStreet Contributor

Omkar Godbole, editor and analyst, joined FXStreet after four years as a research analyst at several Indian brokerage companies.

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