One day doesn’t make a trend, but gold has been catching a bid this week after a lousy couple years of declining prices. Having said that, a limited-risk ABX bull call vertical in Barrick Gold (ABX) may be the safer haven for investors. Let me explain.
A successful hydrogen bomb test by North Korea, saber rattling in the Mideast between Saudi Arabia and Iran, and panic over a potentially weaker Chinese market have helped send the SPDR Gold Shares (GLD) up about 4.5% this week as of Thursday’s close.
At the same time, shares of ABX are up more than 15%.
Is this finally a bottom for gold and a safe-haven refuge for investors? It always could be.
More likely, if a jittery market shakes off its current “risk off” persona — on top of the recent Federal rate hike, which makes gold less attractive — it’s likely going to be difficult for gold to climb higher.
But if investors are still interested in allocating some capital into the precious metal, gold miner ABX looks like the stronger position technically.
ABX Stock Daily Chart
Aside from GLD and dusting off the charts of peers Goldcorp (GG), Agnico Eagle Mines (AEM), Newmont (NEM) and Rangold (RGLD), none in our view, look as promising as the ABX chart.
Technically, ABX is the only name that’s been demonstrating the combination of relative strength the past couple months — sure signs of volume accumulation in its base — and now, a definitive high-volume breakout on Thursday.
To be fair, NEM would be our second favorite if ABX wasn’t so technically strong. Newmont has stronger fundamentals and appears to be channeling higher. However, shares failed to notch a higher high in December, and NEM hasn’t shown as much favor with investors this week.
ABX Stock Bull Call Spread
Checking the ABX options board, the February $9/$10 bull call spread for up to 33 cents is a safer haven for bullish investors wanting to participate in a continuation move of ABX’s breakout.
This ABX vertical reduces the long premium per contract that’s at risk by nearly 40%. The sale of the $10 call also reduces the impact of time decay and volatility risk, which are attractive features.
Given the spread has the potential to return 200% should ABX repeat this week’s price performance and land above $10 in the next six weeks; what’s not to like?
Investment accounts under Christopher Tyler’s management do not currently own positions in any of the securities or their derivatives mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional market insights and related musings, follow Chris on Twitter @Options_CAT.
