A Golden Opportunity Or Just Fake Gold?

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It was easy to get snookered as a kid when someone showed you iron pyrite. You know, the stuff that looks like gold but isn’t. It’s golden color and shiny but not exactly the same as the real thing. Today’s option activity suggested some potential upside in the metal and metal stocks in particular, but is this flow a head fake? Let’s take a closer look at today’s activity and examine the upside potential.

It’s About the Gold Flow

Some question the effectiveness of unusual option activity and other flows into equities, and today’s gold activity is no different. One may be able to provide an argument that it may not add substantially to the probability of a trade working out, but it’s hard to argue the potential movement it uncovers.

That’s why today’s more broad-based activity is more significant. It occurred in more than one stock and in the option and equity markets. The significant amount of money flow today helps to highlight significant price levels and the expectation of upward movement. While the activity is happening early in the development of a bullish trend, it helps direct your focus on what may be about to move big.

Today’s Gold Stock and Option Activity

Here’s a summary of today’s significant activity in the gold space:

  • VanEck Vectors Gold Miners ETF (NYSEARCA: GDX)
    • 2.0 million shares bought at $32.42 in one print
  • Kinross Gold Corporation (NYSE: KGC)
    • 4,200 15 OCT 21 $5 calls mostly BOT in 1 print @ $1.08
  • Yamana Gold Inc (NYSE: AUY)
    • 3,100 15 OCT 21 $4 calls mostly BOT in 1 print @ $0.51

When trades are made in one print it’s an indication of the size of the purchaser. That means that not everyone has hundreds of thousands or millions of dollars to make on a single trade. It’s representative of the expectations of a buyer with more significant means. It’s possible that these early movers may be the initial phase of a much bigger flow of buyers in the future.

But Wait!

How many times have you seen order flow that didn’t pan out, especially recently in gold? To be honest, the option flow into SPDR Gold Trust (NYSEARCA: GLD) has been pretty timely in 2021. Even the June and July rally in GLD saw bullish option interest enter after the gap in mid-June. However, the continuation of that bullish interest failed in early August.

What’s the bullish case for gold? Gold does well in stagflationary times. That basically means a dovish Fed and flagging economic activity. That pretty well describes our current environment except for some of the statement from the Fed about tapering. That’s what makes the outlook for gold so uncertain but may just warrant diminished expectations rather than bearish sentiment.

Conclusion

The recent economic data points to slower retail spending, stalling output, and a dovish hesitancy from the Federal Reserve. This isn’t exactly the most powerful mix of factors, but they are bullish, nonetheless. Today’s activity is just a reminder that as the market looks for opportunities, they may have just found one in the short-term in gold stocks.

Disclaimer: Neither TheoTrade or any of its officers, directors, employees, other personnel, representatives, agents or independent contractors is, in such capacities, a licensed financial adviser, ...

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Comments

William K. 2 years ago Member's comment

Those whose wealth is in billions can put much of it into gold because they do not need to constantly get more, just to pay the bills. They can afford to coast for a while. It is the little fish who must constantly get more who do not move to the safe area when things look unstable, because they can't afford to go a day without more.