3 Cheap Ways to Profit From the Gold Boom


gold - 3 Cheap Ways to Profit From the Gold Boom

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Ever since bottoming in mid-March, gold prices have been surging. Just yesterday, prices eclipsed $1,900, bringing the two-month gain to 13%. Resistance levels have melted along the way, and we now sit atop all major moving averages.

The boom in precious metals has benefited silver and gold stocks too.

The bull move is being driven by rising inflation expectations and a weak dollar. Trillions of dollars have been spent to bail out the economy and fight the global pandemic. Rising prices are being felt across the nation, and many investors are scooping up gold as a hedge.

Though some cooling may be in store after such a red-hot run, pauses and pullbacks should be viewed as buying opportunities. For readers looking for a low-cost path of exposure, I have three perfect picks to consider. Each carries a share price below $50.

  • iShares Gold Trust (NYSEARCA:IAU)
  • iShares Silver Trust (NYSEARCA:SLV)
  • Gold Miners ETF (NYSEARCA:GDX)

After inspecting each chart, I’ll share my favorite options strategy.

3 Cheap Ways to Profit from the Gold Boom: iShares Gold Trust (IAU)

iShares Gold Trust (IAU) with surging uptrend.

Source: The thinkorswim® platform from TD Ameritrade

Wall Street offers two gold ETFs for those looking for a pure-play on the yellow metal. The first is the Gold Trust (NYSEARCA:GLD), and the second is IAU.

Though the iShares fund just underwent a 1 for 2 reverse split, its share price is still low at $36, particularly in comparison to GLD at $178. Its chart mirrors the recovery in gold futures and is quickly closing in on its 2021 high from earlier in the year.

IAU is pushing into overbought territory in the short run, so I wouldn’t be surprised if we see some backing and filling in the near term. This would be a welcome development, likely preventing an even worse correction down the road if gold’s price were allowed to get even more extended.

Whether you buy shares now or wait for a cleaner entry point to develop, IAU deserves serious consideration as a go-to vehicle for capitalizing on the gold boom.

Though the premiums aren’t as juicy as I’d like, IAU does have listed options for selling covered calls.

The Trade: Buy IAU share and sell July $37 calls for 45 cents, one for every 100 shares owned.

iShares Silver Trust (SLV)

iShares Silver Trust (SLV) with looming breakout.

Source: The thinkorswim® platform from TD Ameritrade

Silver prices have been levitating alongside gold but with a bigger gain. SLV is up 17.5% from the March low.

The 20-day, 50-day, and 200-day moving averages are all pointing higher and confirm buyers’ dominance across all time frames.

However, the $26 zone is proving formidable resistance and remains the level that needs to be broken before silver can move on to bigger gains.

Like IAU, SLV offers liquid options that can enhance stock ownership. Naked puts and covered calls can both be used to increase your probability of profit and reduce the share cost. I like selling naked puts here.

The Trade: Sell the July $24 puts for 50 cents.

Gold Miners ETF (GDX)

Gold Miners ETF (GDX) with robust uptrend.

Source: The thinkorswim® platform from TD Ameritrade

Yet another cheap vehicle for traders seeking gold exposure is the Gold Miners ETF. At nearly $40, it’s the highest-priced ticker of today’s three candidates, though not by much. From a volatility perspective, it’s the biggest mover by far. Since March’s bottom, the fund is up 31%. Its price chart looks most similar to IAU, so the analysis is identical.

Options are currently cheap, making a bull call diagonal spread a smart way to bank on neutral to bullish price action moving forward.

The Trade: Buy the Aug $37 call and sell the 25 June $41.50 call for a net debit of $3.15.

If GDX can run to $41.50 or higher in the next month, you can capture a 50% return on investment.

On the date of publication, Tyler Craig held a long position in IAU, SLV, and GDX. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

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