Gold has had one heck of a day, up nearly 4%, and nearly 6% from the morning lows. Was it the Swiss referendum, US dollar weakness, or just plan old simple sell the rumor buy the news?? I have no idea what makes Gold go up or down intraday, but it’s interesting to note that despite all of the negative attention on Gold for the better part of the last six months, the commodity is basically unchanged on the year:
Interestingly, the Gold Miners etf (GDX) is down about 13% in 2014, but playing a little catch up today, up 7% to Gold up ~4%. There was an interesting options trade in Newmont Mining (NEM) earlier today when the stock was trading around $19.15, looked like a trader initiated a new bearish position, buying 16,600 of the March 18 puts for 1.11 and sold 12,500 of the March 16 Puts at .44 to open. This is a put spread where the owner is long more of the 18 puts than short the 16s.
What I find interesting about the trade is that the break-even is below the ten year lows in the stock, but by selling the 16 strike the spread does not offer what I would deem an appropriate amount of protection against a long stock position:
Lining up the GDX (white below) vs NEM (yellow), which are oddly are trading at the same price and have basically correlated at 1 despite minor periods of out-peformance by NEM. Given the correlation, and the fact that NEM makes up almost 8% of the weight of the GDX, it could make sense in such a whippy market where commodity price deflation could lead to credit events in single names to play the GDX from the long sidem from here on out, opposed to any one single name in an effort to minimize risk, in the event of greater dispersion:
I have no view on Gold or the Miners from an investment perspective, but on a short term basis the two were obviously oversold and suffering from overly poor sentiment. The next few days trading could be very telling, as a rejection from last week’s highs could mean a re-test of last month’s lows, while I expect to see continued selling into year end especially at technical resistance levels, about 10% higher.