February Could Translate Into Gains for Precious Metals

VanEck Vectors Gold Miners ETF (GDX) and iShares Silver Trust (SLV) historically outperform in February

Feb 1, 2017 at 3:13 PM
facebook X logo linkedin

Gold prices have been ticking higher in 2017, as several White House policy decisions stoke anxiety and recent comments from President Donald Trump put pressure on the U.S. dollar. As such, many precious metal stocks and exchange-traded funds (ETFs)  have widened their healthy 12-month leads. In fact, our internal Sector Scorecard shows the average 52-week return among the 25 components we track under the "precious metals" umbrella sits at nearly 121%. History suggests this month could translate into even more gains for the sector -- specifically, the VanEck Vectors Gold Miners ETF (GDX) and the iShares Silver Trust (SLV). And while GDX and SLV could be headed for a positive February, options traders have been put-heavy toward both ETFs of late.

Beginning with GDX, the ETF is up nearly 67% year-over-year, enjoying a lift from its 20-day moving average since late December. The shares could also find support in the $23.50 area, which marks a 38.2% Fibonacci retracement of GDX's late-2016 plunge. The ETF is down 0.4% at $23.83 today, as traders parse a hefty round of economic data and the latest policy announcement from the Fed. But GDX could soon be headed higher. February has historically been the ETF's strongest month of the year, with the shares averaging a return of 5.3% since GDX's May 2006 inception, according to data from Schaeffer's Quantitative Analyst Chris Prybal.

Despite long-term technical strength, speculators have taken a bearish approach toward GDX. Across the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), for instance, traders have purchased 1.47 puts for each call over the past two weeks. This ratio rests higher than 86% of all readings from the last 12 months, meaning puts have been bought to open at a faster-than-usual pace. Specifically, the weekly 2/3 22-strike and weekly 2/10 22.50-strike puts have seen the largest increases in open interest in the past 10 sessions, with the major exchanges confirming buy-to-open action at both strikes.

It's also an attractive time to purchase short-term options on GDX, considering unusually low volatility expectations are being priced in. The ETF's Schaeffer's Volatility Index (SVI) of 40% ranks in the low 13th annual percentile. Plus, the Market Vectors Gold Miners ETF has a Schaeffer's Volatility Scorecard (SVS) of 96, indicating the options market has underpriced GDX's ability to make outsized moves over the last 12 months.

Meanwhile, SLV is up 22.5% year-over-year to trade at $16.69. The ETF recently broke out above resistance in the $16.30 region, but is now bumping up against a 38.2% Fibonacci retracement of its own late-2016 decline. Still, it looks as though the shares may have found a fresh foothold above the 100-day moving average. Historically speaking, February has been SLV's second-best month, falling just behind January, with the ETF seeing an average gain of 5.1% since its inception in April 2006.

Put buying on SLV has been accelerated in recent months, though calls still lead on an absolute basis. The ETF's 50-day put/call volume ratio of 0.27 across the ISE, CBOE, and PHLX resides in the 74th percentile of its annual range. And over the last two weeks, the $16 level has been in focus, with the February, March, and weekly 2/3 16-strike puts seeing the highest increases in open interest among options that have not yet expired. While buy-to-open activity has been detected at the weekly strike, the major exchanges point to significant sell-to-open action at the monthly strikes. Simply stated, put sellers are betting on the $16 level to serve as a short-term floor for SLV.

That said, it appears to be a much better time to buy premium on the iShares Silver Trust (SLV) than to sell it. The ETF's SVI of 23 sits just 12 percentage points from an annual low, while its SVS is docked at 91. In any case, SLV options traders seem to be sitting on the sidelines today, with volume running well below the expected intraday rate.

Don't miss Schaeffer's free weekly stock market forecast. Sign up now for Monday Morning Outlook.

Target Effortless Triple-Digit Gains Every Sunday Evening For Life!

This is your chance to triple your profit potential on Sunday evenings, without spending all your free time watching the market.

On Sundays, as a Weekend Plus subscriber, you’ll get up to 6 trades every Sunday, each targeting gains of 200% or more.

Start targeting gains like the ones our subscribers have seen recently, including:

213.3% GAIN on AutoNation calls
100.0% GAIN on Monster Beverage calls
100.4% GAIN on Walgreens Boots Alliance puts
100.4% GAIN on ON Semiconductor calls
257.7% GAIN on Dell calls

101.0% GAIN on Apollo Global Management calls
103.6% GAIN on JP Morgan  Chase calls
105.3% GAIN on DraftKings calls
101.3% GAIN on Airbnb calls
203.0% GAIN on Shopify calls
102.0% GAIN on Cboe Global Markets calls
100.9% GAIN on Boeing calls
102.1% GAIN on Microsoft puts
102.3% GAIN on First Solar calls
101.5% GAIN on PulteGroup calls
101.0% GAIN on Apple calls
209.4% GAIN on NXP Semiconductors calls
100.8% GAIN on Uber Technologies calls
100.4% GAIN on Academy Sports and Outdoors puts
102.2% GAIN on Trade Desk calls
100.8% GAIN on DoorDash calls
100.0% GAIN on Camping World Holdings puts
100.0% GAIN on Cboe Global Markets calls
100.2% GAIN on C3.ai calls
238.5% GAIN on Oracle calls



Rainmaker Ads CGI