Gold spikes as T-yields drop, Risk reversal remains flat lined

Gold extended post-Fed rally in Asia as the US 10-*year treasury yield fell by the most in three weeks. Prices clocked a high of $1289.43 earlier today before trimming gains to trade around $1287 levels. 

The bullish move gathered steam from the low of $1267.81 after the Fed minutes showed the policymakers are getting increasingly nervous about the weak inflation. This cemented expectations that the Fed would be forced to slow down the pace of the policy tightening. Consequently, the 10-year Treasury yield fell 4 basis points, leading to broad based USD weakness and gold rally. 

However, the sentiment in the options market has not improved. The chart below shows the one month 25-delta risk reversal remains largely unchanged around 0.90 and well below the recent high of 1.525. 

One-month 25-delta risk reversal

The positive reading does indicate the calls are more in demand as compared to puts. However, the lack of improvement in the metric, despite the rally in the underlying could be a hint of a bull trap. 

Gold Technical Levels

The metal is fast approaching the key resistance zone of $1290-1300. Since April, the metal has failed three times near $1295 levels. Thus, an end of the day close above $1300 would signal a failure of the triple top formation and shall open doors for $1337 [Nov 2016 high]. 

On the downside, breach of support at $1282 [5-DMA] could yield a pullback to $1278 [10-DMA] and $1274 [Aug 1 high].