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Macro and Vol Commentary

Gold prices have gained momentum so far in July, after strengthening by 4.0% during Q2 2021.

  • The number of vaccinations continues to rise, however, the threat of the variant spread is present, providing further safe-haven appeal to gold
  • The gain in recent weeks was not strong enough to recover from the losses that occurred at the end of June when the Fed signalled that it would raise interest rates earlier than expected
  • However, despite the price gain we have seen recently, the ETF outflows continue to increase
    • All known ETF holdings have fallen from 101.20moz at the beginning of June to 100.5moz on July 12th
  • Inflationary expectations and monetary policy outlook are what is going to continue driving the precious metal performance in the coming months
    • The US June CPI came at 5.4% y/y, the 2008 highs
    • However, bond markets continue to decline, confirming investors’ belief in the Fed resolve keep the policy unchanged even with higher inflation
  • Additionally, strong response from governments to aid economic recovery in the form of monetary and fiscal policies continues to provide liquidity for the precious metal
  • Monetary policy is likely to remain loose in both Europe and the US, however, the latter might start to consider the possibility of tapering of its bond-buying programme
  • In the medium term, we expect inflation growth, both from consumer and producer sides, to remain elevated, supporting gold as an inflation hedge
    • We believe that markets are unlikely to price in this growth into higher interest rates, as both the Fed and the ECB stated their resolve to tolerate higher-than-expected price growth
  • Central banks are conscious of the market response to any changes in the monetary policy rhetoric and will most likely remain cautious in regards to the speed at which they begin asset purchase tapering or hike interest rates

Retail Demand

  • Retail demand in India has been severely hampered by the lockdowns introduced in Q2 in response to the surge in COVID-19 cases
    • However, we believe that it endured the second wave much better than the first given to the localised nature of lockdown restrictions introduced in the country
    • Some shops remained open throughout the lockdown, but saw a decline in demand
  • Now, with the biggest wave mostly underway, demand still remains subdued, and dealers have been forced to offer discounts on domestic prices
    • In rural India, the biggest gold consumers, people were seen selling the bullion to cover the losses incurred from the latest spread of the virus
    • Gold imports stood at 11.4t in May, down significantly from 110t seen in April, owing to weak demand and restrictions on international flights
  • On average, Indian demand accounted for 700t of gold annually, and with the results of the pandemic, it fell to 446.4t in 2020, according to WGC, and now with the strongest wave of restrictions seen yet, demand in 2021 seems unlikely.
  • In China, the holiday- and wedding-related sales boom helped support consumer demand in Q2, supported by lower local rates and expectations of rising prices in the future.
    • China imported 111t of gold in April, 73t higher m/m and 106t higher y/y, the highest level since January 2020.
  • Continued government support through sales promotions and a seasonal uptick in demand point to higher sales in the latter part of 2021
  • We expect that as India and China recover, we could see an uptick in gold sales, and with prices remaining below the 2020 levels, this should entice consumer demand

With the policy tightening debate across the world, fears of inflation continue to underpin market uncertainty, which is supportive of gold. Expectations about the direction of the monetary policy as well as future inflation data will be key metrics in the coming months. For now, it seems that accommodative policies will remain in place regardless of the inflation spikes, creating support for gold demand from both speculative and physical markets.

Volatility Commentary

Over the last few weeks we’ve seen XAUUSD spot slightly recover following being hit by the more hawkish than expected FOMC last month, which also saw volatility on this pair briefly realising higher than recent implied vols covering the period. Fed Chair Powell recently his view that the current bout of inflation would last a few months but would ultimately moderate and is currently resisting moves to tighten monetary policy and we’ve recently seen a slight risk off move on the back of Delta Variant Covid fears. With the potential for further inflation, Fed policy remaining loose and Delta Variant uncertainty remaining in the market we favour positions that benefit from XAUUSD moving higher over the next few months, we favour being long vol/gamma but selling high strikes against this to reduce upfront premiums.

XAUUSD 1-month Implied and Realised Volatility

XAUUSD Trade Idea 

  • Buy 3-month XAUUSD 1825 Call option in 1,000 Oz XAU for circa 40k USD
  • Sell 3-month XAUUSD 1875 Call option in 1,000 Oz XAU for circa 25k USD
  • Total trade – upfront premium circa 15k USD

Positioning Charts

USDBRL NDO Positioning Data 30/06/2021 - 07/07/2021

Downside puts dictated market flow in the week to July 14th, suggesting the market continues to believe that spot will weaken. However, there was less conviction shown by the lower volumes and small notional values. We expect the currency's trend to favour the downside in the long run but prices action could consolidate in the immediate term. 

USDBRL NDO Positioning Data 07/07/2021 - 14/07/2021

USDCNY Vanilla Positioning Data 30/06/2021 - 07/07/2021

Options in the week to July 7th traded a narrow range, with options for expiry in the next 2 weeks in a 6.40-6.55 range. Volumes are noticeably thinner than in previous months and the market lacks conviction. Although activity still favours the downside, spot has consolidated for over a month now. This looks set to continue as the market lacks conviction. 

USDCNY Vanilla Positioning Data 07/07/2021 - 14/07/2021

XAUUSD Vanilla Positioning Data 14/05/2021 - 14/06/2021

The gold options market shows a shift in sentiment between the two months analysed, with more downside cover in the month to July 14th than the previous month. In chart 2 we can see put options executed down to 1600 which we do not envisage but it shows that investors are keen to get downside cover in the near term. 

XAUUSD Vanilla Positioning Data 14/06/2021 - 14/07/2021

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 continued to fluctuate in recent weeks, but the indicators have weakened considerably as the stochastics continue to diverge in the oversold, but the MACD diff is negative and lacked the conviction to provide an outlook. The stochastics have given a sell signal, and this could suggest a move to the downside in the near term. The signal has yet to be confirmed, but a break below 50 and 100 MA at 6.78 could prompt a test of robust support at 200 MA at 6.72, where the market has failed to break below repeatedly in recent weeks. On the upside, a pennant has been formed, and repeated failure of the support levels could suggest gains towards 7.01. This has provided robust support on the upside in recent weeks, a subsequent breach of this level may prompt a test towards 7.10 in the longer run. 

Dollar Index

The dollar index broke above the key trend resistance of 50 MA last week, and protracted buying pressure has kept momentum on the upside. The gains have been moderate, and the MACD diff is starting to converge on the upside, suggesting growing buying pressure. The stochastics are gaining ground, yet are seen converging slightly next to the overbought territory. The long-legged doji and shooting star candles with rejection at 93.03 could pave the way for a correction in the near term back towards 50 MA at 92.73. On the upside, if the index can hold above 93.00, this could trigger further gains on the upside.


The pair has broken back below trend support and the 100 MA at 1804. The indicators are falling, with %K/%D seen converging on the downside. The MACD diff just converged on the downside, a strong sell signal. On the upside, the pair needs to gain a footing above 200 MA at 1810, the recent high is the psychological level at 50 MA at 1812, and this could set the scene for a test of 1820. The indicators looked primed for a correction, and if the pair fails into previous trend support, we could see the market trend lower in the near term.



This is a marketing communication. The information in this report is provided solely for informational purposes and should not be regarded as a recommendation to buy, sell or otherwise deal in any particular investment. Please be aware that, where any views have been expressed in this report, the author of this report may have had many, varied views over the past 12 months, including contrary views.

A large number of views are being generated at all times and these may change quickly. Any valuations or underlying assumptions made are solely based upon the author’s market knowledge and experience.

Please contact the author should you require a copy of any previous reports for comparative purposes. Furthermore, the information in this report has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Data in this report has been sourced from Bloomberg unless otherwise stated. All information in this report is obtained from sources believed to be reliable and we make no representation as to its completeness or accuracy.

This report is not subject to any prohibition on dealing ahead of the dissemination of investment research. Accordingly, the information may have been acted upon by us for our own purposes and has not been procured for the exclusive benefit of customers. Sucden Financial believes that the information contained within this report is already in the public domain. Private customers should not invest in these products unless they are satisfied that the products are suitable for them and they have sought professional advice. Please read our full risk warnings and disclaimers.

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