It’s been a rough month for Gold and it continued yesterday with the price falling $9 an ounce to $908. Other metals traded lower as well. Silver tumbled $0.38 to close at $17.14 a pound, while Platinum fell $92 to close at $1,563 an ounce. Copper dropped $0.14 to $3.44 a pound and Palladium dropped $16.70 to end the day at $354.40 an ounce.
Oil is below $120 this morning which is pushing the Dow higher by 160 points to 11,445. With the price of oil dropping, the dollar will continue to rally. That’s not good news for Gold stocks as many of them are trading lower this morning. We had a little success with Gold stocks at the beginning of July and we able to make some quick profits of 10%-25%.
I’m not bullish on Gold at the moment…I’m not really bearish either. Trading options on Gold stocks can be a tricky business and we were able to make some money trading these types of options when the market was falling and oil was rising. A month later, we are in a different environment. Take a look at how much some of the Gold stocks have declined from July 1. I’ll also list some September options that we will be watching.
Barrick Gold (ABX, $38.32, down $1.70) was $46. The stock was recently upgraded from “Neutral” to “Outperform” by Credit Suisse at the $40 level but is down 4% this morning. The September 40 calls (ABXIH, $2.25, down $0.55) may be worth a look if they can get below $2.00.
Goldcorp (GG, $34.64, down $0.61) was $48 and has dropped 14 points in a month. The company reported a surprise $9.2 million loss for 2Q and lowered its production outlook for the rest of the year. The September 35 calls (GGIG, $2.65, down $0.45) have lost 15% today and may be a good buy at $2.25.
Gold Fields (GFI, $9.86, down $0.08), was $12.57. The stock is down over 20% in a month and is a better stock trade than an option trade at this time. The September 10 calls (GFIIB, $0.75, up $0.05) would double if this stock is at $11.50 by September 19.
Newmont Mining (NEM, $45.45, down $0.67) was at $53. The company reported a decent 2Q, posting a profit of $0.61 a share, compared to loss of $0.89 a share in the prior year quarter. Newmont has been making deals with other, smaller firms in an effort to expand its strategic alliances and those could pay off down the road. Watch the September 45 calls (NEMII, $3.05, down $0.55) and let’s see if they can get down to $2.50.
Although it doesn’t appear to be the case today, Gold stocks could be bottoming out after the steep drop in July. It’s unusual that we are getting such a huge rally before the Fed announcement and it remains to be seen what happens later in the day. The Dow has moved up another 30 points since I started this blog to 11,473. We’re looking at a 200-point gain in just over an hour-an-a-half as oil continues to trade below $120 a barrel.
Rick Rouse
Rick@OptionsMentoring.com
