This article is written exclusively for Investing.com
surged in 2020, rising more than 25% to historic highs. But it is not only the price of the metal that has risen. Gold miners are up at an even faster pace, as measured by the VanEck Vectors Gold Miners ETF (NYSE :), and are up nearly 38% over the year. In fact, some traders are betting that the recent rise in the GDX has only just started and could rise even further.
Despite the optimism, the gold itself comes as inflation data from the and the run at very low levels. At the same time, the speed of MZM fell below one for the first time due to the contraction in the second quarter. It means that prospectors themselves could be in trouble if inflation didn't crop up, causing the gold to sink even further.
Betting on More Profits
The $ 42 call GDX options for the October 16 expiration date have seen their open interest polls rise over the past few trading sessions, rising to approximately 6,700 open contracts on August 12, out of approximately 1,000 contracts on August 4. A significant portion of the calls were bought and traded on demand for about $ 2.20 per contract on August 11
It means that a trader has to increase the price of the GDX ETF to about $ 44.20 in order to make a profit if he holds the contracts until maturity. A gain of about 9% from the price on August 13th.
Also, on August 12, open interest rates for October 16 rose $ 35 with approximately 5,600 contracts. The data shows that these sinks sold for about $ 1.40. It's a bet that the value of the GDX will not fall below $ 35 at maturity.
Source: Investing.com
Technical weakness
But technically the GDX appears to be collapsing and falling below a critical uptrend of around $ 41 . It could even cause the ETF to fall back to its next significant support level of about $ 37.
It may not matter what the charts say, because the miners will carefully monitor the price of the underlying metal, so if the gold price were to fall further, the miners will likely follow suit. The most recent PPI and CPI data showed that inflation rates remain low, with the CPI rising just 1% in July from the same period a year ago, while the PPI fell 0.4% in July from last year.
The data points seem to speak to those concerned about rising inflation due to the Federal Reserve's loose monetary policy. After the weak inflation figures, gold prices have fallen by almost 6%. The metal could fall even lower if it fails to hold tech support around USD 1,925. Should that support level break, the metal could drop to around USD 1,785.
Money Velocity
Inflation rates can remain low for a long time. The rate of MZM fell below 1 for the first time, indicating that there is more money in the system than the entire nominal GDP of the US economy. This high level of money and declining production are causing these deflationary forces on the economy. Even if GDP rebounds sharply in the coming quarters, it may not reach the level necessary to boost inflation.
Overall, it could paint a bleak outlook for gold, and those miners are likely to suffer anyway.
