Gold bugs turn bearish as Yellen heads to Congress
02/14/17

Gold miner companies started 2017 strong, but now traders are getting cold feet as Federal Reserve Chair Janet Yellen heads to Capitol Hill.

A large transaction was detected in Market Vectors Gold Miners ETF (NYSE ARCA: GDX), with 36,500 3-March 21.50 puts (Options to sell a security) bought for $0.05.

Monday’s contracts are designed to make money off of a sharp drop but will expire worthless if GDX doesn’t go south. They require a 14 percent decline by expiration to double, while a 16 percent drop to $21 would result in profit of 900 percent. The fund closed Monday’s session down 1.34 percent to $24.95. Its top holdings include Barrick Gold (TSE: ABX, NYSE: ABX) and Newmont Mining (NYSE NEM).

Gold miners tend to move in the opposite direction of the U.S. dollar because bullion is priced in greenbacks. GDX delivered more than quadruple the gains of the S&P 500 since the beginning of the year as global assets appreciated, but the forward calendar may bring a change in sentiment.

Yellen’s testimony in Congress today and tomorrow is the first of several events traders will eye as potential catalysts. Historically, comments in favor of higher interest rates lift the dollar and depress gold. The dollar has been trending upwards since last summer as data showed strengthening growth.

Economic reports like industrial production on Wednesday and jobless claims Thursday could move currencies and affect gold as well. Another potential catalyst could be further details on President Trump’s tax-reform plays, which he promised for later this month.

It’s also noteworthy that yesterday’s option traders chose the March 3 expiration because that will cover durable-goods orders on February 27, revised fourth-quarter gross domestic product on February 28 and the Institute for Supply Management’s manufacturing index on March 1. All those events have the potential to shine a light on the economy, so traders looking for positive news could express that view by owning puts on GDX.