Given the recent turmoil in Greece, and continued concerns regarding Italy and Spain, I’m looking for some form of QE3 to be enacted — either here, overseas or both.
The European Central Bank will likely be looking to cut rates over the coming meetings, further adding to the liquidity pool. Owing to this additional easing, the euro and U.S. dollar will likely come under further pressures … providing a lift for gold prices.
The recent weakness in gold is due more to a short-term risk management move into cash by funds and hedge funds and not a structural change. And one way to position for an expected leg up in gold prices is by buying the SPDR Gold Trust ETF (NYSE:GLD).
Another idea to consider is going long the Market Vectors Junior Gold Miners ETF (NYSE:GDXJ), which seeks to replicate, net of expenses, the Market Vectors Junior Gold Miners Index.
The fund normally invests at least 80% of total assets in securities that comprise the index. The index tracks the overall performance of foreign and domestic publicly traded companies of small- and medium-capitalization that are involved primarily in the mining for gold and/or silver. The fund is non-diversified.
GDXJ is down 25% year-to-date, while gold has rallied nearly a like amount. We look for this relative underperformance of nearly 50% to close, with GDXJ being a relative outperformer to gold. Given our bullish outlook for gold at these levels, I am looking for GDXJ to move to the 50-day moving average of $33 by January options expiration.
Based on the GDXJ’s current market price of $30.77 and using a target price of $33, a target date of January 20, 2012, and $1,000 of investment capital, this is an excellent candidate for making some short-term options gains.
To play this with options, visit TradingBlock.com, create a free Instant Login and try the TradeBuilder feature. Input the ticker, target price and date, and investment amount, and you’ll see several ways to trade that include selling a January put spread, buying a January call spread, or buying the stock. Best of all, you can see a potential profit-and-loss outline for each strategy.
Create your free login, and get access to these GDXJ option trading strategies by visiting the TradeBuilder here.
