In mid-December we rode gold for a three-day trade that netted quite a few double-digit returns. The “Big Three” is what I like to call my Watch List for gold although there are five or six on the list that I follow. Here is an excerpt from the December 15 blog (quotes are from that day as well):
“Barrick Gold (ABX, $35.49, up $0.58) traded as high as $37.84 and our December calls were closed for a 100% return while the January calls were closed for about a 30% gain.
Goldcorp (GG, $30.62, down $1.03) fell 10% from its high of $33.20. The December 30 calls (GGLF, $1.25, down $0.90) traded as high as $3.30 and were profiled at $1.65 Monday morning. Good thing we set that $2.90 stop, huh? The January calls returned 25%.
It was all downhill for Newmont Mining (NEM, $39.17, down $0.84) after the stock hit a high of $41.79. The December calls were closed for a double while the January calls returned about 35%.
All-in-all these were great returns for three days worth of work. Gold finished at $868 an ounce, up $26, and could continue higher. I’m not quite sure if gold will break $1000, let alone $900, but it worked well for us this week. There will be another opportunity to trade gold again (we have traded gold numerous times this year) and we made a few triples this time around.
The last time gold broke $900 was September 23 when gold prices surged more than $44 an ounce to settle at $909 for the day. That was the same day oil jumped $25 to over $130 a barrel. Those were huge moves but now gold is at $870 while oil is at $40. See what I’m saying…” —
I’m not sure where gold is headed but the key thing I wanted to alert you to was the “There will be another opportunity to trade gold again (we have traded gold numerous times this year)” quote.
Gold closed yesterday at $855 an ounce, up $15 and is slightly below where we got out last time. ABX is a $1 lower, GG is at $26 and NEM is trading about the same.
Over the last couple of years, gold has had a pretty good run from late January until the end of February. In November 2008, gold had dipped to around $750 an ounce and we jumped on the train for the way back up. We set stops and were out in less than a week.
Look, I’m not sure if gold is ready to challenge $900 but the move in gold is hard to ignore with many of the banks and the currency markets still unsettled. I don’t trust Newmont but Goldcorp and Barrick Gold are a possibility.
The call action in Goldcorp was heavy, especially with the February 32.50 calls (GGBZ, $0.70, up $0.03) as over 5,000 contracts traded hands. The Barrick Gold February 40 calls (ABXBH, $1.10, up $0.05) saw over 7,000 contracts trade hands. Both call options are a out-of-the-money and they would be risky trades. However, they may be good for another three-day marriage.
If you want to read more about gold stocks from past blogs, type in “gold” in the Search box and you will see how we have traded them in the past.
Rick Rouse
Rick@OptionsMentoring.com
