Despite retreating from its recent peak near $4,400 per ounce less than a month ago, gold prices are staging a rebound. Analysis by 22V Research suggests this recovery bodes well for gold mining stocks—a leveraged instrument for gold exposure.
Historically, gold has moved inversely to equities, but concerns over dollar depreciation and robust central bank demand for the precious metal have flipped this correlation to positive.
"Gold has been trading like a meme stock lately," said Jeffrey Jacobson, Head of Derivatives Strategy at 22V Research, in a phone interview.
The 200-day correlation between the S&P 500 and spot gold prices underscores this shift. Jacobson noted that the VanEck Gold Miners ETF (GDX) typically exhibits twice the volatility of gold itself. Year-to-date, GDX has delivered returns exceeding 125%, dwarfing the 57% gain of the SPDR Gold Shares ETF (GLD).
As U.S. lawmakers work to end the longest government shutdown in history, equities have rallied, and investor sentiment toward gold has turned optimistic. Some strategists argue that last month’s pullback from record highs reflected profit-taking rather than the end of the bull run.
"The selling pressure has passed, and gold is poised to resume its climb toward new highs," wrote Tim Hayes, Chief Global Strategist at Ned Davis Research, in a Tuesday report.
Jacobson advocates using gold ETF derivatives to bet on further upside. In a November 10 report, he called the current environment "the ideal time to consider bullish option structures for gold’s rebound."
Later that day, one trader spent over $35 million on an options position that would profit if GLD closes above $390 by mid-December. The trader employed a "call spread" strategy, which benefits from modest near-term gains but caps upside if gold surges past record levels.
However, Jacobson believes GDX options—tracking gold miners—offer better value than GLD options. Skew, a measure of demand for bullish bets, shows less enthusiasm for mining stock calls relative to gold calls.
"If you expect gold to rise and mining stocks to regain leadership, GDX call skew below 2x makes its calls or call spreads attractive for continued upside," he added.
Among individual miners, Newmont Corp. (NEM), Agnico Eagle Mines (AEM), and Barrick Gold (GOLD) have each roughly doubled gold’s gains this year. Despite CEO turnover, operational challenges in Mali, and a Q3 revenue miss, Barrick’s stock has surged over 130% year-to-date.
Bloomberg-compiled analyst estimates project lower gold output this year for these miners, but soaring prices are expected to drive double-digit revenue growth, with adjusted EPS jumping at least 79% year-over-year.
Gold mining stocks have outperformed the S&P 500 year-to-date.
Risks remain, however. GDX is a high-volatility vehicle for the "dollar debasement trade"—where gold rallies on structural shifts away from dollar assets. Its elevated implied volatility signals wide potential outcome ranges, warning that an ETF that doubled in under a year could just as easily correct sharply.
"Expect dramatic swings in these stocks," warned Dean Curnutt, CEO of Macro Risk Advisors. "High implied volatility reflects an extremely broad range of potential outcomes."