We forecast a moderately higher gold price during the remainder of the year with a 4Q16 price forecast of $1,350/oz as our economists expect a slow pace of Fed tightening with the next rate hike likely at the December meeting.

Having said that, one should acknowledge the downside risk from very long investor and speculative positioning, which could at some stage cause some selling pressure. In addition, physical demand from key Asian consumers has remained stubbornly weak this year.

Please be noted that the implied volatilities of 1W XAUUSD ATM contracts are spiking eccentrically above 18.75% for 1w tenors.

While rising positive risk reversal flashes are still signaling upside risks with positively skewed 1w IVs, considering above fundamental developments in bullion markets we think the opportunity lies in writing an OTM put while formulating below strategy for gold's fluctuation at this juncture.

3-Way Options straddle versus Put
Spread ratio: (Long 1: Long 1: Short 1)

Rationale: Bidding short term risk reversals with writing 1W OTM put contracts,

After Trumps shocking victory the bullion market may gain momentum on safe-haven demand sentiment.

So, with favoring current uptrend of this precious metal shorting, writing exorbitantly priced puts with shorter expiries would reduce the cost of ATM straddles.

How to execute:  

Go long in XAU/USD 2w at the money delta put, long in 4w at the money delta call and simultaneously, Short 1w (1%) out of the money put with positive theta.