Earlier in January, we closed our long gold trades in order to lock in profits ahead of the largely uncertain risks around Trump’s inauguration and the kick-off of his presidency. Obviously, both those immediate catalysts have passed but arguably, much of the uncertainty remains. Yet, from our perspective now, we view this lingering ambiguity as a potential extra accelerant to a near-term, fundamental-based rally in gold.

On treasuries, Fixed Income research analysts reiterate that “although there is room for high yields in short run, gold's safe haven sentiments to remain intact in long run” given their skepticism on large-scale fiscal stimulus and the potential for growth to moderate among other drivers like seasonality and stretched investor positioning to the short side in gold.

From an FX perspective, while long dollar positioning remains material even after the retracement lower in the dollar index YTD, our analysts believe, “the broad dollar does still seem vulnerable should Trump’s first several days in action disappoint those looking for primarily growth-friendly and reflationary policies, without stoking disruption or trade-confrontation risks.”

Combining these macro views with the general sense of uncertainty in markets (safe haven demand) and the relatively clean investor positioning in gold, compels us to recommend going long in gold.

OTC outlook and hedging strategy:

Neutral delta risk reversals of XAUUSD: From the nutshell showing delta risk reversals of gold prices, you can probably make out that this commodity has been the most expensive pairs to be hedged for short term downside risks as it indicates calls have been relatively overpriced over puts, short term IVs seem more conducive for option writers.

Needless to specify, Gold price vols have still been fading away, no pace owing to the monetary policies of the US Federal Reserve, investors seem to be shifting safe haven investment sentiments into the treasuries as the more hawkish notes are intensifying the interest rate hiking cycle.

Positively skewed 2w IVs are indicating opportunities for writers of the exorbitant call options, while 2m skews are in favor of calls to mitigate bullish risks.

Hence, we advocate the longs in 2M ATM 0.51 delta calls while long in ATM -0.49 delta put option of 2m tenors, simultaneously, short 1m (1%) OTM calls, the hedging portfolio is constructed at net debit with 56% of net delta. But the cost of hedging portfolio has been reduced from short leg.​