Gold’s rally and Ag options’ upside skew

What’s driving gold prices, Ag options’ upside skew

By Blu Putnam, Chief Economist & Erik Norland, Senior Economist, CME Group

Gold: Driven by Rates

  • Gold has been marching higher since Fed’s pause in rate hikes
  • A rate cut could add to gold’s momentum, but can it hit $1,600?
  • Worsening of trade tensions could be supportive for safe-haven gold
  • Is gold’s role in portfolio diversification diminishing?
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The Rationale for Ag Options’ Upward Skew

  • Out-of-the-money Ag call options tend to uniquely cost more than puts
  • Soybean Oil and Wheat options traders do well in anticipating price direction
  • Soybean Oil, Wheat prices tend to rise when options skews are highly positive
  • But extremely positive skews in Soybeans and Soymeal were often a sell signal
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