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The shares of gold miners may be ready to rise sharply by mid-March. The VanEck Gold Miners ETF (NYSE 🙂 has seen significant bullish option bets in recent weeks. It could result in a ETF increase of no less than 19.3% from its price of around $ 28 on January 9.
The bullish options bets coincide with a sharp rise in the price of. Precious metal has risen by around 5% since December 24, and based on the technical charts it could get even higher in the coming weeks and months. The bullish set up in gold could be a reason why traders make big bets on the rising gold mining sector.
Betting that gold mine reserves are rising
The open interest in the $ 33 GDX March 20 calls saw the number of open contracts on January 6 increase sharply by around 48,000 contracts. Data from Trade Alert show that the calls traded at the ASK are an indication that the options have been purchased and a bet that the underlying ETF will rise. At that time, the options were purchased for around $ 0.55 per contract. It means that a buyer of these calls to make a profit should increase the ETF above the breakeven price of $ 33.55, which is determined by adding the strike price plus the premium paid for the calls.
Technical patterns have become bullish
The technical pattern for gold has become positive and indicates that the precious metal could rise to higher prices in the coming weeks. Gold has been more popular since August 2018. But more recently, the graph shows that gold has created a bullish continuation pattern known as a pennant. In addition, the price has recently risen above a level of technical resistance to around $ 1,555. Based on a pennant pattern projection and the following significant resistance levels on the chart, gold could see its price rise to around $ 1,700.
However, any higher movement can take some time because the gold price has seen its relative strength index to overbought levels, which is currently nearly 70. The long-term trend in the RSI suggests that the price continues to rise, suggesting that bullish momentum enters the metal.
A weaker dollar can help
One reason why gold can continue to rise, bringing mining stocks higher in the process, is that the US dollar has fallen in recent weeks. The, which measures a basket of currencies against the dollar, has fallen in value by around 2% since it reached a peak of around 100 on October 1. The dollar index almost falls below a level of support, which means that the currency can become even lower. If that happens, it would be bullish for the price of gold.
U.S. Pat. Dollar Index Daily Graph
Higher gold prices would help to raise the stocks of the gold miners by increasing the revenues of those companies. In addition, higher prices and improved sales should help to increase the margins for mining companies and thus increase their profits and revenues.
If the dollar continues to weaken and gold prices rise, it seems logical for gold miners to win. It is probably the big reason why some traders bet bullish on the gold mining group.
