Gold mining and exploration company Gold Fields Limited (GFI) has soared 40 percent in recent weeks as gold prices have once again topped $2,000 per ounce. One trader sees a further rally ahead.
That’s based on the January 2024 $25 calls. With 287 days until expiration, 12,751 contracts traded compared to a prior open interest of 130, for a massive 98-fold jump in volume on the trade. The buyer of the calls paid $0.58.
Shares recently traded for about $14.50. Shares would need to rally another 72 percent this year for the option to move in-the-money. GFI is still under its 52-week high just under $17, set nearly a year ago.
Gold mining stocks tend to fare well when the price of gold is rising. That’s because mining companies have relatively fixed short-term costs, so higher gold prices translate into higher profits.
Action to take: Inflation remains high, and it’s likely that interest rates can’t move much higher without hurting the banking sector some more. That’s a recipe for higher inflation, which tends to keep gold prices strong. That makes gold stocks a potentially worthwhile buy today. Gold Fields also pays a 3.1 percent dividend right now.
For traders, the January 2024 calls are an inexpensive bet on gold prices moving higher this year. If the trade doesn’t play out, the downside is limited. It’s likely that the options could deliver mid-double-digit gains on a further rally for the metal.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.