Gold's options market retains bullish bias despite sell-off in spot market

Gold fell by over 4.5% on Monday and could suffer deeper declines in the next few weeks as the US fiscal imprudence and hopes for coronavirus vaccine are likely to power treasury yields higher. 

Even so, the options market retains the bullish bias with call options claiming a higher premium than puts, as indicated by the positive one-month risk reversals. The gauge 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. At press time, gold is changing hands at $1,870 per ounce.