Gold clocks 16-day high, risk reversals retrace bearish bias

• Safe haven demand pushes gold higher in Asia.
• The implied volatility premium for XAU (gold) puts drops.

Gold (XAU/USD) jumped to a 16-day high of $1,339 in Asia as escalating trade tensions triggered a flight to safety.

The Dow Jones Industrial Average fell more than 700 points yesterday after Trump imposed tariffs on $60 billion worth of Chinese imports. Further, reports are doing the rounds that China is planning to slap tariffs on $3 billion worth of US products, ranging from pork to steel pipes.

Clearly, two of the world's largest economies are heading towards a full-fledged trade war. Consequently, Asian investors are moving out of risky assets and into safe-haven assets like gold.

As of writing, the yellow metal is changing hands at $1,337/Oz. The Shanghai Composite index is down 2.5 percent, while the S&P 500 futures are reporting 0.5 percent drop.

Risk reversals retrace bearish bias

The XAU/USD one-month 25 delta risk reversals are being at 0.225 XAU Puts vs. 0.525 XAU puts on March 20. The decline in the implied volatility premium for XAU puts (sell gold) adds credence to gold's rebound from 100-day MA support of $1,310.

Gold Technical Levels

A daily close above $1,340 (March 6 high) would indicate the sell-off from the Feb. 16 high of $1,362 has ended and could yield a rally to $1,351 (Feb. 1 high) and $1,362 (Feb. 16 high). On the downside, a move below $1,330 (50-day MA) would allow a deeper pullback to $1,325 (5-day MA) and $1,322 (10-day MA).