As per the analysis, it can be seen that Gold has been trending low for the past four weeks. That implies risk reversal. On Monday, in the duration of eight months, Gold, the yellow metal, dropped to its lowest.
The decline of risk reversal made a touchdown at 3.125. The last touchdown of the same level occurred last year, in the month of June, 21. However, it did rise up to 4.425 this year in the month of January. Surprisingly this happened during the US-Iran tension.
As of now, Gold is currently on trade at a level of $1570. This happened shortly after it managed to rise at $1,611 last month on the 8th. However, keeping the recent outbreak of Coronavirus in mind, a slowdown in the economy of China is shortly expected to happen.
Risk-Reversal playing a Major Role in Gold Demand
The reason why risk reversal is a factor is that the demand for the call on Gold has not increased as per the expectations. On the other hand, a call option is something by which a holder gets the right to buy Gold assets.
They are certainly not under any obligation to do so. But the right still remains that they can buy at a price that was previously agreed on and before a certain fixed date. The implications of a negative risk reversal state that the demands for assets are higher compared to that of calls.