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Options Jive

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Gold Miners: Tracking the Market or Gold?

Options Jive

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

Traders looking to sell premium have few choices in which Implied Volatility (IV) is high. Precious metals Futures have been one area to sell, specifically Gold and the Gold miners. The relationship between GLD (Gold ETF) and stocks (SPX) have varied with the correlation generally low, sometimes positive and sometimes negative. The GDX (Gold miners ETF) often moves higher or lower with the price of GLD but sometimes follows the SPX. We decided to run a study to get some hard data about the inter-relationship between SPX, GLD and GDX. Which relationship is stronger and what would it tell us?

Our study was conducted using data from GDX, GLD and SPX from 2006 to the present. We analyzed the daily moves (close to close) and isolated days in which SPX closed down, the GLD closed up and and the GDX closed down. These were instances when GDX followed SPX and not GLD.

A table of the results showed that the frequency when the SPX and the GDX were down but the GLD was up was just 7% of all days. Those days in which GDX followed the market instead of Gold saw larger down days in SPX and weaker up days in GLD.

Tom noted, “The market has power, even over commodities. When the market sucks everything in, it even has that power over different commodity markets. My takeaway is that maybe you should sell more premium in the GDX because premium in GDX will be less influenced by the price of Gold and more influenced (and correlated) to the stock market. You also will use less buying power.”

Watch this segment of Option Jive with Tom Sosnoff and Tony Battista for the important takeaways and the results on our study of the interplay between the movements in SPX, GLD and GDX.

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