Some market observers believe gold could be boosted by news Senate Republicans’ effort to replace the Affordable Care Act (ACA) has, at least for the time being, failed. However, investors looking for a big near-term pop in the VanEck Vectors Gold Miners ETF (NYSEArca:GDX) may want to temper those expectations.
GDX, the largest gold miners ETF, is up 2.2% over the past week, but options market data indicate traders see limited upside for the fund.
“Nevertheless, put volume is running at an accelerated clip, with 47,032 contracts traded so far — double what’s typically seen at this point in the day,” according to Schaeffer’s Investment Research. “Most active are the weekly 8/25 20.50- and 21-strike puts, where 28,000 contracts have collectively traded. It looks like the bulk of the activity is of the buy-to-open kind, meaning options traders are bracing for a quick retreat for the exchange-traded fund (ETF) over the next five weeks — a time frame that includes a Fed meeting and jobs report.”
A contrarian point of view indicates this could be the time to look at gold miners funds when the ETFs are out of favor with some market participants. That is encouraging after the recent weakness experienced by gold mining stocks, but investors should remember this can be a volatile industry and some market observers believe gold miners will remain volatile for the foreseeable future.