Tim Biggam, TradingBlock (October 28, 2011, 3:45pm CDT)
|Symbol||Analyst Target Price||Target Date|
|GDXJ||33.00||January 20, 2012|
The Market Vectors Junior Gold Miners ETF (ticker: GDXJ) seeks to replicate, net of expenses, the Market Vectors Junior Gold Miners Index. The fund normally invests at least 80% of total assets in securities that comprise the index. The index tracks the overall performance of foreign and domestic publicly-traded companies of small- and medium-capitalization that are involved primarily in the mining for gold and/or silver. The fund is non-diversified.
Given the recent turmoil in Greece, and continued concerns regarding Italy and Spain, we look for some form of QE3 to be enacted, either here, overseas, or both. The European Central Bank will likely be looking to cut rates over the coming meetings, further adding to the liquidity pool. Owing to this additional easing, the Euro and US dollar will likely come under further pressures, providing a lift for gold prices. The recent weakness in gold is due more to a short-term risk management move into cash by funds and hedge funds and not a structural change.
One way to position for an expected leg up in gold prices is by buying GLD. Another idea to consider is going long GDXJ. GDXJ is down 25% YTD, while Gold has rallied nearly a like-amount. We look for this relative under-performance of nearly 50% to close, with GDXJ being a relative out-performer to Gold.
Given our bullish outlook for Gold at these levels, I look for GDXJ to move to the 50-day moving average of 33 by January expiration.
Play of the Day
Based on the Market Vectors Junior Gold Miners ETF's (ticker: GDXJ) current market price of $30.77 and using a target price of $33.00, a target date of January 20, 2012 and $1,000 of investment capital, below are three options strategies (ranked by potential profit) and a comparative stock trade to consider should the price target be achieved at the target date.
Click on the strategy name below to access trade details using TradeBuilder on TradingBlock.com. Powered by TradingBlock's TradeBuilder.
|Strategy (click for details)||% Return at Target||Probability of breaking
even or better
|Buy Jan Call Butterfly||+163%||46%|
|Buy Jan Call Spread||+78%||42%|
|Buy Jan Call Condor||+50%||66%|
* Click link to access TradeBuilder details on TradingBlock.com. Must have Instant or Actual account. Subject to change due to changing market conditions. Click here to view risks regarding selling stock short.
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