FxWirePro: Bullion to retest 5 ½ half years lows – strips for hedging as risk reversal signals long term downtrend

The downtrend in bullion market has been persisting and we can urge this hundred times as the negative delta risk reversal numbers shown in the above nutshell suggests downside hedging in long term has been relatively expensive which means anticipation of gold prices to fall further. The bearish signal stands robust on monthly moving average as well considering the previous trend analysis. RSI and slow stochastic curves are not substantiating weekly upswings.

From the above table you can observe the delta risk reversal has been neutral but shifted into red zone again for 3 months contracts with increased volatility. Further the positions constructed for bull overview will increase in value with time decay. But for now rate hike is almost deferred and what do you think can be the impact on gold?

Since then we had already mentioned the prices to have rebound and it has approximately shown 3 percent consolidation. Gold prices have been gradually rising from 1st week of August fanned optimism that the Federal Reserve's raising interest rates until the very end of 2015. But for now the precious metal is again ready to head towards five and half years lows of $1,071.28 on 20th July amid the Fed's speculation was on for rising interest rates in September for the first time since 2006.

Option Strategic Framework: Diagonal option strips (XAU/USD)

Buy 15D At-The-Money delta call option and simultaneously short 2 lots of 1M At-The-Money put options with positive theta values. This strategy involves buying a number of ATM calls with shorter expiry to be in a safer side if any abrupt swings arise and double the number of puts with long term expiry contemplating our bearish anticipation and fed's rate speculation are also on the table.