Gold is working on its fifth down day of the last six trading sessions. And it’s weighing on gold stocks. The persistent weakness is a marked change in character for a safe haven that was headed to the moon. The inflation narrative (zero interest rates + stimulus + supply chain bottlenecks + war = higher prices) and the Russia-Ukraine crisis have provided plenty of fuel for the yellow metal’s flight.
So what changed?
Nothing.
And that makes this dip a potential buying opportunity. Nothing goes straight up, and both oil and gold had gotten too hot to trot. The profit-taking is understandable given their parabolic posture. But you have to ask if the uptrend is dead? The odds suggest not. As does the fundamental backdrop that has been putting upward pressure on commodity prices. And that makes me want to be a buyer of the dip. Here are three tickers you can use:
Let’s take a closer look at each.
Gold Stocks to Buy on the Dip: Gold Miners ETF (GDX)
Allow me to let you in on a secret. Gold stocks all exhibit a high correlation. When gold is in favor, all gold miners rise. When the shiny stuff falls out of favor, gold miners get whacked. It doesn’t much matter which one you own. So, rather than wrestling with stock selection, why not just buy the entire basket?
GDX is the most liquid gold miners ETF, so it’s the obvious choice here. It soared alongside the gold spike to tag a 52-week high. And its price is now sitting firmly in an uptrend with rising 50-day and 20-day moving averages. Given the posture, we are in a dip-buying environment. And, well, prices just dipped.
The increased volatility is juicing options premiums. That, coupled with the fund’s low share price, make naked puts my favorite way to play.
The Trade: Sell the April $33 put for around 50 cents.
Newmont Mining (NEM)
In sifting through the top holdings of GDX, Newmont Mining stands above the rest. Its outperformance is extremely impressive. While GDX remains well off its 2020 highs, NEM already surpassed its prior peak during the last upswing to reach a record high. Volume swelled ruing the ascent to confirm institutions were entering.
In an orderly four-bar pullback, we’ve since retreated to the rising 20-day moving average. While buyers could show up here, it’s essential to wait for confirmation, such as prices rising above a previous day’s high. If the retracement continues for a fifth or sixth day before a pivot low forms, there’s no sense in purchasing today.
Since NEM is arguably the strongest stock in the industry, let’s go with a bull call spread to capitalize on its next bounce better.
The Trade: Buy the May $75/$80 bull call spread for around $1.50.
Gold Stocks to Buy on the Dip: First Majestic Silver (AG)
Traders seeking a lower-cost option for gold stocks to play should consider First Majestic Silver. At $13, its share price creates really low margin requirements for strategies like naked puts. Stock owners can also use covered calls to enhance returns. The price trend has been consistently rising for the past two months. And, it’s dragging the 50-day and 20-day averages higher.
Significantly, we’ve also pushed to the top side of the 200-day moving average for the first time since last July. Consider $15 the next upside target if gold remains in favor.
I’m echoing the GDX idea with another naked put. Remember, by selling a put, you obligate yourself to buy shares at the strike price.
The Trade: Sell the April $12 put for 50 cents.
On the date of publication, Tyler Craig did not have (either directly or indirectly) any positions in the securities mentioned in this article.
