The VanEck Vectors Gold Miners ETF (NYSEArca: GDX), the largest exchange traded fund dedicated to gold mining stocks, is sporting a fourth-quarter loss of 7.5%. Some traders think the benchmark gold miners fund could see more declines.
GDX is comprised of global gold miners, with a notable tilt toward Canadian and U.S. mining companies. Stock fundamentals like cost deflation across the mining industry, share valuations below long-term average and rising M&A are all supportive of the miners space as well, but those fundamentals could be glossed over if the dollar strengthens. However, GDX has been drawing bearish options bets.
“Specifically, the 10-day moving average of GDX’s put/call skew on 5% out-of-the-money (OOTM) options – which compares implied volatility (IV) readings for OOTM puts against OOTM calls — has skyrocketed by more than 20% over the past 20 sessions, and stands at its highest point since December 2014,” reports Schaeffer’s Investment Research.
Inflation could serve as a catalyst for the yellow metal and for gold-related ETFs. By some metrics, the Fed has under-estimated U.S. inflation, which could prove beneficial to gold because the yellow metal is historically a popular inflation fighter.
Another possible catalyst for gold entering the back of the year is lingering debate surrounding how many times the Fed can raise rates, especially if the tax reform bill goes through and triggers faster growth.
“Since 2006, there have been just eight surges of that magnitude in this barometer, including the one that flashed just last week. Three of the signals sounded before the March 2009 bottom, and the other four prior to last week’s occurred between September 2013 and November 2014,” notes Schaeffer’s.
While the dollar has been one of the worst-performing developed market currencies this year, which has assisted gold at various points during the year, some currency traders believe the dollar can rebound. However, there are ways for investors to prosper with the yellow metal even if the dollar rallies.
“So, while the sample size is small, if recent history repeats, GDX could see some volatility over the next six months — and possibly break out of its 2017 confinement, with the $21-$22 area emerging as support this year, and advances stopping short in the $24-$26 range,” according to Schaeffer’s.
For more information on the gold market, visit our gold category.