After falling as much as 15% this year, Goldcorp (GG), my favorite way to trade gold, has shot up 20%. The move through February was almost a straight line and the stock moved particularly strongly last week.
*Chart created using TeleChart:
While I sold the last of my trading positions in GG last week, this move reminded me of why I like to use the miners to trade around core positions in the commodity: they can sell off to cheaper levels, making them great buys, and subsequently skyrocket to much higher prices. In fact, GG’s sprint has put it well ahead of gold for 2011, and the size and the speed of the rise in the GG/gold ratio is relatively large compared to other moves over the past 30 months or so. One could argue that GG had reached extremely oversold levels in January relative to gold and has now reverted to more a more “normal” relationship.
Source: stockcharts.com
It seems that buyers of calls in the options pits were also driving GG last week. CNBC reported that “…at one point, call volume reached four times the average daily volume.” March 50 and 52.5 calls were the most popular. See the short video below:
The commentator implied that this action is all about the fear trade. Such notions are just distractions from the longer-term, bullish case for gold (and silver) as anti-currency debasement plays and hedges. With gold now reaching new highs, it is clear with hindsight that I should have started rebuilding my core GLD position at the same time I was buying Goldcorp during January’s sell-off. I am not sure yet whether to pull out the same “Plan B” I had to pull out for silver.
Be careful out there!
Full disclosure: long SLV