Gold drops to lowest since Dec. 29, risk reversals retrace bullish bias

• Gold (XAU/USD) fell to $1,301 on Tuesday - the lowest level since Dec. 29. 
• Risk reversals show a drop in demand for XAU calls. 

Gold (XAU/USD) nearly dropped to $1,300 yesterday as the American dollar turned positive on a year-to-date basis. As of writing, the metal is trading at $1,307, representing a 4.25 percent drop from the recent high of $1365 (April 11 high). 

Further, the bullish sentiment in the options market has weakened significantly, the one-month 25 delta risk reversals. Currently,  risk reversals stand at 0.6 - the lowest since March 29 and down from the recent high of 2.2. The positive number indicates the implied volatility for gold calls (bullish bets) is still higher than that of the implied volatility for puts. However, the decline from 2.2 to 0.6 does indicate the demand for gold calls has dropped significantly in the wake of a decline in gold prices from $1,365 to $1,301. 

Note, the demand for calls could drop further if the yellow metal finds acceptance below the psychological mark of $1,300. 

Gold risk reversals