Gold Miners: Have Your Finger On The Button!

| October 8, 2014 | 0 Comments

gold minersChalk up another point for gold bears…

The yellow metal fell through technical support at $1,200 an ounce last Friday.   Gold ultimately plunged to $1,183 an ounce on Monday as investors reacted to a surging US Dollar.

Not surprisingly, the metal’s downturn is wreaking havoc on miners…

Market Vectors Gold Miners

As you can see, the Market Vectors Gold Miners (GDX) has dropped considerably since setting multi-month highs in July 2014. In fact, the gold miner ETF is down 20% over the past three months.

But look at the green line…

The recent downturn has GDX trading at $20, which happens to be the multi-year low set in late 2013.

No doubt about it, traders are watching this level very closely.

Why?

The $20 price area is a great reference point for investors looking to establish new long positions. If miners rally in coming weeks, they’ll be sitting pretty with a cost basis at multi-year lows.

On the other hand, if GDX breaks firmly below $20, they can simply close the trade for a small loss.

It’s important to note miners are still facing considerable headwinds. First of all, gold has been exceptionally weak in recent trading. The yellow metal must rally strongly from current levels in order for GDX to have any chance at gains in coming weeks.

What’s more, stocks in general are acting poorly right now. Case in point, the DOW was down a whopping 270 points yesterday.

However, there is one bright spot…

As loyal readers know, this summer’s US Dollar rally has done major damage to the entire commodity space- not just gold. But after a remarkable surge this past Friday, the Dollar index turned sharply lower on Monday. The currency was weak in yesterday’s session as well.

Thanks to this sudden onset of bearish price action, we could be witnessing the start of a correction for the Greenback. 

If the Dollar continues lower in coming sessions, it’s highly likely investors will come rushing into gold and the miners producing it.

How do you capitalize on this information?

The aforementioned GDX is without a doubt the easiest way to play miners from the long side. On the other hand, if gold miners break lower in coming days, you may want to focus your attention on the Direxion Daily Gold Miners Bear 3X shares (DUST).

Just keep in mind, DUST is a triple leveraged ETF. So while you could be rewarded with outsized gains if miners fall, you’ll suffer large losses if they rally.

Until Next Time,

Justin Bennett

***Editor’s Note*** Subscribers to my one-of-a-kind options service, the Options Profit Pipeline, have racked up gains of 100% in Agnico Eagle Mines (AEM) and 93% in Newmont Mining (NEM) in recent days. We bought put options on these gold miners in mid-September, expecting continued weakness in the price of gold.

If you’d like to discover how to make low-risk/high-reward options trade in commodity producing companies, click here!

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Category: Gold

About the Author ()

Justin Bennett is the editor of Commodity ETF Alert, an investment advisory focused on profiting from the ebb and flow of important commodities via ETFs. The commodity veteran and options specialist is also a regular contributor to the Dynamic Wealth Report. Every week, Justin shares his thoughts with our readers on a variety of commodity-related topics. Justin is also a frequent contributor to Commodity Trading Research’s free daily e-letter. And he’s the editor of another highly successful and popular investment advisory, the Options Profit Pipeline.

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