FxWirePro: Gold OTC sensitivity tools indicate lingering bulls’ sentiments in far-month deliveries

Good ownership in front end Gold skews: With Gold front vols bound to remain firm for longer and as the late cycle Gold rally takes hold on the back of the post-Fed, Gold skews should stay supported even as 3M skews are at the highest level since Aug 2017. Positively skewed IVs of 6m tenors have been signifying the considerable hedging sentiments for bullish risks. While risk reversals have been bullish neutral across all tenors.

Accordingly, we advise long in Dec’18 CME gold as we FX team pulling forward their bearish USD view, we now believe that the persistence of USD weakness is here to stay.

As such, we recently boosted our gold price forecasts and recommended length in Dec’18 CME gold.  We saw the early March pullback as an advantageous level to add length and lower our average entry cost.

We initiated longs in gold at $1,352.80/oz for Dec’18 delivery. Added an equivalent unit at $1,327/oz on in the recent past again for a new entry level of $1,339.90/oz.

Trade target is $1,540/oz with a stop at $1,273/oz.  Marked to market at $1,356.25/oz on Mar 21, 2018 for a gain of $16.35/oz or 1.2%.

Gold on the Comex division of the NYME dropped by $5.10 but recovered slightly to flash at $1,341.60 a troy ounce by 11:51 AM GMT.

Alternatively, we had also suggested buying delta-hedged 3M XAUUSD 25-delta risk reversals @ 1.3/1.6 vol.

Currency Strength Index: FxWirePro's hourly USD spot index is inching towards 50 levels (which is bullish) ahead of FOMC Member Brainard speech while articulating (at 11:51 GMT). For more details on the index, please refer below weblink:

http://www.fxwirepro.com/currencyindex.

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