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Macro and Vol Commentary

Gold has suffered in 2021, down 9% so far, as yields rise. What do we expect in the coming weeks for gold.

  • Global vaccination rates gather pace; this is increased risk appetite in financial markets, causing gold to suffer. Economic data is expected to improve as restrictions ease. Investors are transfixed on vaccination rates, and sterling is the number one example of that sentiment.
  • Total known holdings of gold ETFs have declined by nearly 3% in 2021 to 103m ounces; this is a far cry from November's high of 111.53m ounces. This suggests a waning appetite for gold which could trigger further losses.
  • Investors have reduced their exposure to the non-yielding asset in favour of cryptocurrencies, and Reddit picked stocks.
  • At this time, risk appetite remains strong following the rally in commodities and stocks. While talk of the commodity supercycle is in full swing, we believe it is more likely to be a stimulus vacuum and a China-led demand story.
  • Stimulus levels remain extensive, and even though the ECB reduced their pandemic bond-buying scheme last week, we expect any change in stimulus measures to be flagged far in advance; we expect the Fed will change their language in Q4 2021, and the dollar will start to rally.
  • While rising stimulus levels and uncertainty traditionally causes gold to rally, as mentioned above, investors remain focused on vaccination rates and the return to economic normality.
  • If economic data surprises the downside, this could put gold back in the picture, but until stimulus measures and pandemic employment support schemes are tapered, gold is likely to struggle.

Yields, Stocks, and Gold

  • In recent weeks we have seen yields rally, particularly in the US, which has exerted downward pressure on gold as a non-yielding asset.
  • The steepening of the yield curve is evident from the spread between the US 2yr and 30yr yield; the 30yr yield has reached 2.18%, just off the high of 2.27%, while the 2yr yield is at 0.125%.
  • European yields are considerably lower, with 10yr yields for France, Germany, Portugal, Sweden, Netherlands, Switzerland all negative. The UK 10yr yield is positive and trades at 0.763% on vaccination premium.
  • The rates rally have been detrimental to gold, but the gap between real and nominal yields suggests investors are betting on inflation. However, this is cost-push inflation, not demand-pull inflation.
  • We could rate consolidate in the near term before moving once again this week. We have the Fed, and we look closely for any language change.
  • We do not expect any changes, yes, but the implied policy rate is starting to rise, reaching 0.09% in November 2021
  • Any mentions of a change in their bond-buying programs will prompt further movements in the rates.
  • As rates rise, stocks have consolidated, but following the $1.9trn stimulus package's approval, equities were well bid, which could prompt further gains. The dividend yield for the S&P 500 dropped below the US 10yr yield recently, which could drive some movement in funds; however, neither are great for gold.

The non-commercial net-long is 216,845 contracts, down to -3,124 contracts the previous weeks; this is the lowest net position since June 2019. The majority of this came from a decline in spreading, which declined by 28,955 contracts. With rates rising, risk appetite strong for base metals and stocks, we expect gold to suffer. However, cost-push inflation is expected to emerge, and the case for gold will return; we favour holding a gold short position in the near term. Owning downside options to reduce your average price for when we prices start to turn, we prefer building a long position between $1,650-$1,700/oz. Central Banks are likely to keep their support mechanisms in place for the time being; this could cause rates to continue to rally, acting as a headwind to gold in the near term through $1,700/oz.

Volatility Commentary

Over the last few months XAUUSD over shorter date vols (for this commentary we will focus on 1-month expiry), vol realising hasn’t shown a strong trend vs implied for the last few months though there has been a slight tendency over the last 3 months to be slightly lower than implied. We see in the below-implied vol over the last 3 month has generally traded in a relatively stable 16-18 vol range with market risk on sentiment gradually improving. As Covid vaccines roll out we expect over the next few weeks/months tentative risk-on sentiment to improve and see XAUUSD continue lower and expect vols to remain relatively stable.

XAUUSD 1-month Implied and Realised Volatility

XAUUSD Trade Idea

  • Buy 2-month expiry XAUUSD EKI Put, Strike 1,700 and barrier 1,650, premium circa 183k USD (for reference equivalent vanilla cost circa 202k USD)
  • Sell 2-month expiry XAUUSD Put, Strike 1,625, premium circa 85k USD
  • Overall cost premium circa 98k USD

Positioning Charts

USDBRL NDO Positioning Data 16/02/2021 - 23/02/2021

Options executed this week for USDBRL shows little conviction in the immediate term. There few options with an expiry before the end of this week, what options were executed had a moderate bias to the upside. However, the further away from today, we move there are more puts executed but the majority between 5-5.35, in June there are some large put options that have high notional values with a range to 4.90-5.10. There is limited upside exposure and if the USD rallies significantly you could see option traders chase the market. Options due to expire this week have a low notional value and this could trigger the market to consolidate.

USDBRL NDO Positioning Data 23/02/2021 - 02/03/2021

USDCNY Vanilla Positioning Data 16/02/2021 - 23/02/2021

Options executed this week has a downside bias, there is a larger amount of put options executed. The put options have trade a range of 6.30-6.50 which is slightly wider than last week. There is very little upside exposure in the near term, the dollar has strengthened recently and if this causes spot to rally we could see traders rush to cover their position, causing raising vol. We expect USDCNY to weaken in the near term and remain on-trend.  

USDCNY Vanilla Positioning Data 23/02/2021 - 02/03/2021

XAUUSD Vanilla Positioning Data 02/01/2020 - 02/02/2021

Option executed for gold show a change in sentiment between the two months. In the month to March 2nd  the majority of options executed are above spot. The majority of options traded are between 1800-2000 which is a wide range, between March and June there is a greater emphasis on call options and upside exposure as inflation appears. This could lead to more call options executed above the market as a hedge. There is little conviction in the options market at this time.

XAUUSD Vanilla Positioning Data  02/02/2021 - 02/03/2021

Charts and Tables

FX Expiries


Volatility Grid

Historical Spot FX Volatility (30D Rolling)

FX Matrix (today)

Weekly Change


Key Events & Releases

Technical Charts 

JP Morgan Global FX Volatility Index

The index sold off yesterday, after struggling above 8.34, and robust selling pressure triggered losses through support at 7.80 to 7.73. The stochastics are falling further into oversold, and the MACD diff is negative and converging, suggesting waning selling pressure. Momentum is on the downside, and we expect this to remain the case in the near term. The bearish candles suggest lower prices, and the rejection of key resistance levels helps to affirm the trend. We could see the index consolidate above 7.80 before another leg on the downside through 10 DMA. On the upside, the index needs to regain a footing above 8.00 in order to regain upside conviction, but we expect the trend to remain on the back foot.

Dollar Index

The index has remained on-trend in the last week, but the rejection of the 91.30 resistance has promoted a break below back to 90.70. The indicators point to a change of trend, the MACD diff is negative but has started to converge, suggesting improved buying pressure. The stochastics are also improving, and to confirm the buy signal, the index needs to close above 91.09 and then target 91.30 once again. The support at 90.70 has been firm, and if it does not hold, we could prices edge down to 100 DMA at 90.595. Indicators point to a change in trend to more bullish sentiment in the near term.

XAUUSD Currency

Gold has weakened after rejecting 1740, with selling pressure prompting a test of support at 1710. The stochastics send a sell signal, with %K/%D converging on the downside and positive and converging, suggesting a deteriorating outlook. A break through 1700 to 1682 would confirm further bearish momentum. On the upside, a break above 1750 could confirm the change of trend. Indicators point to a slowdown in positive momentum, and rejection of prices above 1740 points to further weakness in the pair in the near term.



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