Gold and Inflation

Update on MTH and GME option trades....

Sold MTH for 1.85 for a 42% loss.

I had bought 2 GME calls. I sold one for 2.75 (35% loss) when the 50 day moving average was breached. I decided to hang on to the other contract for a couple reasons. There is a previous gap up that may act as a spring board, and there is still plenty of time for this trade to work. Also, the loss was less than 50%, and that still keeps my risk/reward above 2 to 1 beacuse a successful trade will typically lead to greater than 100% gain. I will update the exit of this contract also.

On Friday I bought a September 45 Call on NEM for 4.55. The stock is around 45.00, so this is an at-the-money trade where the stock needs to get to 49.55 ish to breakeven by September expiration. NEM is Newmont Mining Corp. It is one of the largest gold mining companies in the world.

Historically Gold prices have risen during inflationary periods. Inflationary periods also tend to correspond with periods of currency devaluation. I am no economist and the reasons for those trends are many, but there are currently strong fundamental trends toward a declining US dollar value, and I don't see that changing real soon. As you could infer, there is a strong negative correlation between gold and the US dollar. Some of the factors driving dollar devaluation are increasing liquidity from the federal reserve, lowering interest rates on US notes, and increasing price of oil.

The earnings and price of gold mining stocks also tend to rise as the market price of their product (gold) rises. Gold prices have eased off their highs of the last few months. Many leading gold stocks have (at least temporarily) bounced off their old price breakout points and it looks likely that the sector will rise from here.
I like the pattern on NEM and think that it is enitrely possible that NEM will move up above 57.00 on the next advancing phase. A move to 53 or 54 dollars in the next couple months would create a 100% return, so that would be the target if the trade goes as expected.

The stop loss for me on this trade will be if NEM's stock price closes below 42.93.

Pete