The election results have been weighed, measured and found deserving of a monster rally for risk assets. Stocks, commodities, bitcoin and precious metals are all zipping higher. That said, this week’s boom in gold ETFs is particularly compelling and warrants closer inspection.
In and of itself, an upswing in prices doesn’t interest me. It’s the breaking of a long-term resistance that’s the hook. Gold blasted through multiple ceilings with Thursday’s 2.7% surge, officially completing its correction phase, and signaling its long-term uptrend has begun anew.
With all of that in mind, Wall Street offers a handful of vehicles for getting exposure, but ETFs provide some variety. Bullish plays on any of them look like a lay-up if the fresh breakout holds.
Thus, here are my three favorite gold ETFs to capitalize on:
- SPDR Gold Trust (NYSEARCA:GLD)
- VanEck Vectors Gold Miners ETF (NYSEARCA:GDX)
- iShares Silver Trust (NYSEARCA:SLV)
Now let’s break down their differences and identify an options trade to bank on continued strength.
Gold ETFs to Buy: SPDR Gold Trust (GLD)
If you want to buy gold directly without heading into the futures market, then the SPDR Gold Trust beckons. It’s the Street’s go-to proxy for gold, but is priced at roughly one-tenth of the cost of the spot price. In other words, while gold futures cost $1,860, GLD stock is trading for a mere $175.
Moreover, GLD stock’s price broke above three critical resistance zones last week. First was the descending trendline that defined its three-month correction. The second was the horizontal resistance marking the high of its two-month range. The third was the 50-day moving average. Pushing through any single one would be bullish, but all three? No wonder buyers are stampeding.
Collectively, bull call spreads offer a low-cost way to bet on additional upside.
The Trade: Buy the Jan. $185/$195 bull call for $2.85.
VanEck Vectors Gold Miners ETF (GDX)
Gold stocks typically follow the flight path of gold for obvious reasons. While the commodity popped 2.7% on Thursday, the Gold Miners ETF launched 7.2%. The outsized move illustrates one of the key differences between playing gold companies over the commodity: they’re more volatile.
If you’re seeking a more exciting play than GLD stock, then GDX stock should be at the top of your list of gold ETFs. It essentially cracked the same three resistance areas that GLD stock did, and is poised to return to its 52-week high near $46. That translates into another 11% of upside from Friday’s close.
Also, the cheaper price tag of GDX stock lends itself to either buying puts outright or building a put diagonal spread. So if you prefer a higher probability of profit, then I’d suggest the latter strategy. And here’s how to enter it.
The Trade: Sell the Jan. $40 call while selling the Dec. $45 call for $2.60.
Gold ETFs to Buy: iShares Silver Trust (SLV)
Our third gold ETF to buy isn’t really a gold ETF. It’s silver! Recently, their performance hasn’t been all that different. The 10-day correlation coefficient between the two is 0.98, which essentially means they’re moving in lockstep. Although the past three months of weakness in both metals have taken on slightly different paths, silver was able to push past the same corresponding resistance zones as gold this week.
At $22.19, the iShares Silver Trust also allows for different strategies than GLD. For instance, covered calls and naked puts are far cheaper to deploy.
Currently, SLV has an implied volatility rank of 41% and is the second-highest rank of every ETF I track (which is all the liquid ones) — making it a perfect candidate for naked puts.
The Trade: Sell the Dec. $22 put for 70 cents.
On the date of publication, Tyler Craig held a LONG position in GLD and SLV.
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