UNITED STATES March 27 2014 12:15 PM
LONDON (Scrap Register): Deutsche Bank believes the mid-cycle correction in the gold price since the end of December is at risk of unraveling heading into the second quarter.
The British Bank expects this will most likely triggered by an improvement in real economy data in the US, a pronounced rise in US real yields and a strengthening in the US dollar.
Deutsche Bank finds that there exist considerable differences in terms of the variance risk premium across the four broad commodity sectors. Indeed since 1999, the average implied versus realized premium for Brent crude oil was 3.04%. Since 2010, this premium rose to 6.37%. The comparable figures for copper were 1.16% and 4.49% respectively.
In precious metals, the average implied versus realized premium for gold was 1.19%. Since 2010, the premium has been 1.43%. From these results, we find that the risk premium in the crude oil market is the most persistent.
According to Deutsche Bank, there exists a systematic bias in the options markets for many commodities. The results outlined in this report suggest the most persistent bias occurs in the crude oil market and specifically Brent while other commodities such as gold, aluminium and corn the variance risk premium is less compelling.