Kaloti Precious Metals-Morning Market Report-Friday, April 21, 2017

Market Daily & Weekly

Note: Indications only, open and closing prices are bids; Data source: Bloomberg; Times as per Dubai

Fundamentals and News

Downside Bund vs Depressed Upside Gold May Cover French Outcomes

Bund downside may increase with Melenchon unable to make further ground in French election polls, while depressed gold upside optionality could take care of tail risks, Bloomberg strategist Tanvir Sandhu writes.

Downside bund options may come into focus amid the coiling of risk with June 160.50 put equivalent to generic yield of about 40bp expiring May 26

Gold implieds trading at relatively low levels given depressed realized vols in both gold and U.S. real rates, even as geopolitical tensions in Syria and North Korea and risk of potential U.S. government shutdown remain; see chart here

Low entry point for OTM short-dated gold call options may offset downside costs on bunds in case of rise in political risks, with three-month 25-delta call at 14 vol, in the bottom quartile of 2-year range

Cross vol gold spread with bunds may appeal given the low cost of optionality in gold and its attractiveness as a hedging tool against risk-off events relative to SPX

Conviction for outright bund shorts remains limited as French political risk stays fluid and with high number of undecided voters; extreme tail risk is that both Le Pen and Melenchon get through the first round.

Implied probability of Le Pen victory based on betting odds is at the lows while therecent recovery of Fillon in the polls brings back the probability of Fillon vs Macron, which will see bund political risk premia collapse if realized.

Franklin Gold and Precious Metals Fund added Asanko Gold Inc. to its investments and exited G-Resources Group Ltd. in the first quarter.

The fund, led by Fred Fromm and Stephen Land, boosted its investment in Alamos Gold Inc. and cut OceanaGold Corp., according to a quarterly update by the investment company analyzed by Bloomberg Global Data. Newcrest Mining Ltd. was the biggest holding, representing 5.3 percent of the fund.

Data Forthcoming Releases

Courtesy: http://kalotipm.com.sg/kaloti-market-report-21st-april-2017