Gold’s intermediate trend has been bearish after rejecting highs of 1384.88 levels.

The gold price is down over 15.73% from the recent highs of 1384.88 levels in just Iast 5-months, and most likely to retest $1,050 after losing strong support at $1,200-$1,210 levels.

More slumps likely ahead of Fed’s rate hiking hopes in December meeting as the bears break the major support at 1208 & 1200 marks after bearish crossover on SMAs on weekly terms.

Fed hikes before 2017 is also very much on cards. The underlying spot gold price is sensitive to moves in U.S. rates, as a rise would lift the opportunity cost of holding non-yielding assets such as bullion. The recent data flow is mixed, but Fed hike by year-end remains likely.

Some softer news on core inflation and jobless claims.

As you can observe 1w IV are reducing considerably which is a good news for short-term option writers. While delta risk reversals across various tenors are mounting bearish hedging sentiments in the  long run.

Considering all these parameters we gold prices are likely to plummet further towards 1100 and 1050 levels as this precious metal price is always US rate sensitive.

Hence, we reckon gamma puts are the most conducive instruments in reverse put spreads as a downside hedging vehicle as this tool is indicative of the rate of change of the Delta values with respect to the movement of the rate in the underlying market. In the Sensitivity table, Gamma shows how much the Delta will change if the underlying rate moves by 1%.

Thus, bidding 1w IVs and 1m risk reversals, we recommend initiating longs in 2 lots of 1m at the money gamma put options, while writing 1w (1%) in the money put options, the strategy is to be constructed at net debit.