The golden bull train is rumbling down the tracks once more. In case you didn’t notice, the Market Vectors Gold Miners ETF (NYSEARCA:GDX) is up 34% over the past two months. Some find the rousing start reminiscent of last year’s epic rise in GDX and crew.
Credit for the resurrection lies in large part with the recent turnabout in greenbacks. U.S. dollar weakness almost always drives buyers into gold miners such as Barrick Gold Corporation (USA) (NYSE:ABX) and Newmont Mining Corp (NYSE:NEM). And since peaking last month, the buck has been under pressure.
Until bulls once again wrest control of America’s currency, it’s game-on for long GDX plays.
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The nascent rise in GDX has been sufficient in turning its short and intermediate-term trends higher. Take a look at the rising 20-day and 50-day moving averages in the accompanying chart. As for the long-term trend … well, it maintained its upward tilt despite gold stocks’ dreadful back-half performance last year.
Mild profit-taking has turned gold miners lower over the past week. The slight drift has taken on the form of a bull flag pattern. These consolidation setups provide lower-risk entries for would-be buyers. A break above the descending trendline (upper dotted line) will signal the completion of the flag and kick-off GDX’s next ascent.
A Golden Trade Idea on GDX
Implied volatility for GDX options has descended to its lowest levels of the year, and that means call options can be snatched up on the cheap.
If you think the golden resurrection continues, buy the Apr $24 calls for around $2.10.
The max loss is limited to the initial debit and will be forfeited if the fund sits below $24 at expiration. The max gain is unlimited offering unfettered participation if GDX really takes flight in the coming weeks.
As of this writing, Tyler Craig did not hold a position in any of the aforementioned securities.
