There has been renewed interest lately in precious metal investments, and for a good reason – gold is one of very few assets showing any strength in 2016. The SPDR Gold Trust ETF is has climbed almost 17 percent year to date, recently enjoying a spurt of 8 winning days out of 9 and approaching the $125.23/share level of resistance. Compare that to the December nadir of $100.50 and it’s easy to see why those who trade the news are interested in gold and its derivatives.




Bullish

Gold recently broke out of its bear market. The latest price of nearly $1,240 an ounce swept away the high of last October, and prices are well above the bearish trend line established in October 2012, as well as rocketing through the 200-day moving average. A new peak above the $1,300 resistance level is the metal’s next target.





Definitely Bullish

Gold mining shares are definitely bullish. If you examine the Market Vectors Gold Miners ETF (sticker GDX), you’ll verify that its recent price of $18.84 has pierced the October 2015 high, as well as the 200-day moving average and the downward trend line. The shares are moving up on heavy volume, demonstrating strong interest in the sector. The ETF has risen about 51 percent since the middle of January, so a pullback would create an opportune purchase possibility. A pullback that met strong support near $17 and then rebounded to new highs would definitely reinforce the bullish scenario.




Currency Effects

Another influence lifting the price of gold, and gold mining shares, is the recent weakness of the U.S. dollar, which has fallen about 5 percent since December. Remember that gold is priced in American currency, so a weak greenback boosts gold’s price. We shall see whether the dollar regains strength and, if so, how it affects the price of gold.

What Are Your Options?


For day traders who don’t wish to hold positions overnight, there is the option-chain-play for the GDX. Expirations every week give you a lot of choices. You might assume an unhedged position – short calls or long puts if bearish, short puts or long calls if bullish – or devise one or more spreads.
Bulls can cover the sale of out-of-the-money calls by holding the suitable number of underlying shares. You pocket the premium and any price rise up to the strike. Your shares will be called away if the ETF heads above the strike. Otherwise, you can roll over the spread as often as you wish. If you’re seeking a longer-term long position, you might sell a cash-covered put that, if assigned, will allow you to purchase the shares at a lower price, all the while pocketing the premium. Recent open interest figures indicate maximum interest in strike prices between $15 and $20. For you technical traders, the GDX’s beta is 0.57, not strongly correlated with the remainder of the stock market. The 65-day average daily volume is more than 58 million shares.

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