Seeking Alpha

Goldman: Sell gold miner volatility in 2014

  • You can profit on the gold miners in the 2014, says Goldman, but not by owning them. Instead, says the team, take note of the divergence in volatility on the SPDR Gold Trust (GLD) and the Market Vectors Gold Miners ETF (GDX).
  • While the miner's ETF volatility is priced for a nightmare scenario, volatility on the price of gold itself has failed to keep pace. A straddle - in which a punter sells both a put and call option on the GDX - would pay off if the market "begins to chill out on the subject of gold miner volatility," writes Brendan Conway.
  • As far as the metals or the miners, they're not yet a buy. “With rising U.S. rates and a less accommodative Fed, we believe a sharp rise in the gold price and gold miner profitability is the least likely scenario."
  • Miner ETFs: GDX, GDXJ, NUGT, DUST, GLDX, GGGG, RING, JNUG, PSAU, JDST
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Comments (18)
  • lasvegasbrad
    , contributor
    Comments (52) | Send Message
     
    That is just crazy! Sell WHAT call? Here is GDX ready to scream back to 30, if not 50, and Goldman can't wait for you to be basically short that? Some advice.
    3 Jan, 11:05 AM Reply Like
  • 6151621
    , contributor
    Comments (1174) | Send Message
     
    Iasvegasbrad, apparently you weren't hanging around the water cooler to overhear that Goldman wants to buy those calls GS is advising one to sell.
    4 Jan, 03:18 AM Reply Like
  • JT4041
    , contributor
    Comments (97) | Send Message
     
    Whatever advice Goldman gives do the opposite.. those self serving douche's will not say anything unless they are poised to make a buck off people following their advice.
    4 Jan, 12:15 PM Reply Like
  • DeepValueLover
    , contributor
    Comments (8603) | Send Message
     
    Goldman Sachs free advice is worth every penny.
    6 Jan, 03:29 PM Reply Like
  • Brian Bobbitt
    , contributor
    Comments (1905) | Send Message
     
    I like the ideas in this article, but have negative feelings about the method of making money.

     

    I just bought some more silver physical yesterday in the form of 90% coins. Not a lot, but remember, I am a retired fellow and attempting to conserve capital in the first few years of retirement.

     

    I seem to be doing just fine by keeping my fat fingers offa my investment money, Letting the money managers do that stuff, and I stick with the coins and precious metals.

     

    The method of mine is simple; keep buying at all levels a little at a time. I have been going through the coins I buy and comparing them to their values due to age, condition and rarity and so on. In every batch of coins, I usually get one that pays for my coffee and perhaps a little backwards slide in the price of the metals.

     

    Last night I found about four coins (which I buy for melt value) which should return more than $20 each. The coins are common ones but collectors need them to fill in their little blue books.

     

    By going to coin shows at least once a month, I sell these outstanding coins, and use the money to buy silver eagles. See?

     

    Then hold the silver eagles as if they weren't mine. Just ignore the fact I have them and if the bad times come, I'm all set. In the meantime, if things go like last year, my normal investments carry me thru the day. In the last batch, one of the neato coins was the first commemorative ever, from the Columbian Expo in 1892. See?

     

    Conclusion: Unless you are into tending your crops 24/7, then the method in this article is not for the common man. It is for a fellow with a suit and tie, and suspenders and belt and shiny shoes. I do this in my shorts and black coffee in the morning. ( so to speak )
    Capt. Brian
    3 Jan, 11:12 AM Reply Like
  • filipo
    , contributor
    Comments (3476) | Send Message
     
    Brian,
    The idea of trading "in my shorts and black coffee in the morning." is tempting.
    :):):)
    4 Jan, 12:30 PM Reply Like
  • thatsforschur
    , contributor
    Comments (55) | Send Message
     
    Can't believe Goldman really has investors interests so much at heart. Sounds suspicious. Anyway, I am still going according to rational instincts. Silver mining prices, particularly, are screamingly low and have only UP to go. Just a matter of when, not if. Disparity between mind-boggling demand for physical silver/gold and indifference to firesale prices of miners can only last so long.
    3 Jan, 11:19 AM Reply Like
  • Cameron Swinehart
    , contributor
    Comments (304) | Send Message
     
    What Goldman says and what Goldman does is often different and can change week to week. Ignore it and invest for the long haul.
    3 Jan, 11:25 AM Reply Like
  • mike_simms
    , contributor
    Comments (103) | Send Message
     
    April 2012- Goldman Sachs agreed on Thursday to pay securities regulators $22 million to settle accusations that it did not have adequate policies in place to stop stock research tips from being passed inappropriately to its biggest clients.

     

    I wouldn't trust these guys as far as I could thrown them.
    3 Jan, 12:00 PM Reply Like
  • boldaq
    , contributor
    Comments (97) | Send Message
     
    "... we believe a sharp rise in the gold price and gold miner profitability is the least likely scenario."
    i.e., time to buy gold and gold mines.
    3 Jan, 12:09 PM Reply Like
  • 6151621
    , contributor
    Comments (1174) | Send Message
     
    boldaq, so you got the VIP client memo which said do the opposite of what are general reports advise.
    4 Jan, 03:21 AM Reply Like
  • convoluted
    , contributor
    Comments (1936) | Send Message
     
    Well, I'm on record for numerous straddle strategies regarding GDX, NUGT, DUST,etc. But, at this time, the average trader should be careful with selling naked calls against the miners-and, I'm not so sure adding the short put is the best way to go. GS has a lot more capital to play with, and will not panic out of a position. The individual trader, sitting at home counting flowers on the wall, playing solitaire till dawn with a deck of fifty-one, should consider (a)iron condor type positions, where both short calls and short puts are hedged, (b)hedging naked short calls or puts on GDX with either DUST/NUGT options or shares, and/or (c)selling LEAP put spreads on GDX against current expiration GDX short calls (where the premium from the LEAP put position is equal to or greater than the shorter term call risk).
    CAVEAT: Managerial discretion is needed in management of positions. For example, When DUST was near 45 the other day, I sold JAN 40 puts. As DUST headed towards 50, I had a very healthy return. But, being the greedy pig that I am, I just 'ASSumed' that the miners were hated so much that there was no need to take an early profit. Of course, DUST is now below 40, and I've gone from a lot of money to a loss (paper at the moment). On the other hand, the NUGT short puts have gone from rags to riches. Along the way, I added NUGT stock, so I'm ahead of the game. I also own a lot of GDX as a result of previous short put assignments. Which brings me to another point: You absolutely have to be mentally prepared to approach your account with a 'balance sheet' perspective, as well as P&L. The constant status of your account balance can be a detriment. For instance, if I'm assigned a stock/ETF via a short put, I view that as an additional opportunity-not a problem. To my way of thinking, my new shares and the difference in existing FMV is an 'account payable' to me. I've 'loaned' the difference and I sell calls to collect 'interest.' When the 'adjusted basis' is 'square', I re-evaluate.
    Actually, some of my strategies can be a bit 'convoluted' if not tedious, so most should just stick to basic spreads. And, if your friends are concerned about your isolation, just tell them that you're...'Smoking cigarettes and watching Captain Kangaroo...Now don't tell me,"I've nothing to do."
    3 Jan, 01:39 PM Reply Like
  • user878
    , contributor
    Comments (108) | Send Message
     
    Thank you GS for giving me the green light to load up heavily GDX and GLD !!
    3 Jan, 02:37 PM Reply Like
  • ltsgt1
    , contributor
    Comments (1462) | Send Message
     
    I gave up on getting more physical at $1100 and took delivery of what I'd bought along the way down from $1400. I received the package within 4 days of product draws, no physical shortage here in the US yet. I'm looking to buy CEF on the next dip.

     

    The following are couple of videos which offer explanations of what is really going on:

     

    http://bit.ly/1lFvEe4

     

    http://bit.ly/1lFvEe6
    3 Jan, 03:21 PM Reply Like
  • gonetouring
    , contributor
    Comments (27) | Send Message
     
    “With rising U.S. rates and a less accommodative Fed, we believe a sharp rise in the gold price and gold miner profitability is the least likely scenario." ... the Giant Squid is speaking with other face. With rising rates the US Fed will need to go into QE hyper-drive (to contain rates), and gold will rocket upwards accordingly
    3 Jan, 09:13 PM Reply Like
  • thatsforschur
    , contributor
    Comments (55) | Send Message
     
    May I humbly suggest buying promising solid junior miners not yet in production, so the metal price is irrelevant at this stage. I bought Global Minerals Ltd - GMLFF - (silver) for a few cents(!) and it went up 24.9% on Friday (one day). Looking at Global's chart one can see clearly the leverage is some hundreds of percent.
    5 Jan, 09:31 AM Reply Like
  • Cameron Swinehart
    , contributor
    Comments (304) | Send Message
     
    Yes, the juniors have been crushed in some cases much more than the majors. Banro Corp (BAA) is another example trading around $.60 and in 2012 was trading above $6. Great opportunity.
    5 Jan, 10:17 AM Reply Like
  • StephanJK
    , contributor
    Comments (49) | Send Message
     
    As an investor in gold miners, I don't fear rising US rates, because this would mean, that the FED would stop it's tapering and enter into the next round of QE, i.e. "rising US rates and less accommodative FED" will not happen at all. If the rates will really go out of control, then, it will happen in combination with a massive inflation, in this case, you will be very happy to own gold and/or miners. I think, Goldman knows this also ;-).
    6 Jan, 06:10 AM Reply Like
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