Gold has been in a lot of pressure this week as the pair has seen losses below the key level of $1850 due to the Covid-19 vaccine news coming from Pfizer. The move came on the back of news that the vaccine had proven 90% successful in trials which sent the US dollar higher as markets assumed less US stimulus would be required and for a shorter time frame.
This week another pharmaceutical company Moderna is also up for releasing data for its huge trials and is mostly talked to have the same effectiveness as Pfizer-guided cure.
The options market retains the bullish bias with call options claiming higher premiums than puts, as indicated by the positive one-month risk reversals. The measure of calls to puts is currently trading at 0.25, according to data source Reuters.
That said, the demand for call options has weakened this week, possibly tracking the decline in the spot market. Risk reversals have pulled back from Friday’s multi-month high of 1.35 to 0.25.
The gauge will likely drop below zero, implying a bearish shift in the options market, if the spot price breach Monday’s low of $1,850.
With sustained trading below 100-day EMA, currently around $1,875, gold bears remain confident to break September’s bottom near $1,848, which in turn will drag the quote down to the early July top of $1,818 before highlighting the 200-day EMA level of $1,794.
The next important levels to watch out for are on the $1,850 and $1,800 on the downside and $1,900 and $1,950 on the upside.
Looking ahead, the story is not likely to change, as markets are pricing in the Covid-19 vaccine to be rolled out by the year-end, which could force the higher-yielding Treasury yields higher and consequently, the dollar.
The risk remains to the sell side for gold even if the virus situation worsens internationally. The focus also shifts to the fundamentals, with the US weekly jobless claims and CPI due on the cards alongside speeches by the Heads of the key global central banks, the Fed, the ECB and the BOE.
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