Back Derivatives Strategy

Add Tactical Gold Hedges Using GDX Puts With Gold Overbought and Up Sharply Year to Date

Published on February 19, 2025

Jeff Jacobson

Both gold (GLD) and the gold miners have had a great start to the year. While gold has rallied ~ 13% from the 12/30 lows, the main gold miner index (GDX) is up nearly 24%. After underperforming the commodity for much of last year, the miners have done a good job of playing catch-up in 2025 thus far. With gold currently “overbought” on a relative strength index (RSI), I favor buying GDX puts as a tactical hedge to an existing long/bullish gold position. The last time gold was this overbought on the RSI (late October), we saw gold decline by ~ 8.3% (with GDX dropping by ~ 16%). Given the sharp outperformance we have seen by the miners to start the year, I believe GDX puts/put spreads could be the “preferred” hedge here should we see another pullback in gold.

Colin Fenton, 22V’s commodity strategist, expects a gold correction in the near future would prove orderly and find support at $2650. 22V’s 2025 end-of-year price target for cash gold is $3,250. We estimate a two-in-three chance of a yearend cash price above $3,000 and only a 12% chance of a cash price below $2,650. Expect a normal correction soon, but it is to be bought.

I also favor establishing tactical hedges in GDX now ahead of Newmont (NEM) earnings later this week on 2/20. NEM is the largest weighting in GDX at nearly 13%, and has also seen large, realized moves on recent earnings reports. NEM has averaged a 9.75% 1-day move over the last four earnings, with GDX averaging a nearly 3% 1-day move on those four reports (with 3 of those 4 moves lower). With the GDX/GLD relative spread already pulling back (even as gold continues to trade at the highs) perhaps the GDX underperformance has already started?

Trade:
Buy GDX March 40 puts for $0.89 (GDX 41.30 ref)

Trade Details:

Buying the GDX March 33-delta puts that are ~ 3% below spot
GDX up 24% from the December lows and gold is registering an “overbought” RSI
GDX/GLD relative spread had moved up by more than 12% off the Dec lows and is now breaking below the current uptrend
NEM earnings on 2/20 could be a potential catalyst for further gold miner weakness/underperformance given recent history of disappointing
Puts can be used to hedge a current long gold position, or long exposure to the miners (as a proxy)

Gold (GLD) as “overbought” as it was in late October (saw a 8.3% decline shortly after)

GDX/GLD relative spread already starting to move lower following the 12.4% outperformance we saw by the miners to gold off the Dec lows

DISCLOSURES AND DISCLAIMERS

Analyst Certification

The analyst, 22V Research Group, primarily responsible for the preparation of this research report attests to the following: (1) that the views and opinions rendered in this research report reflect his or her personal views about the subject companies or issuers; and (2) that no part of the research analyst’s compensation was, is, or will be directly related to the specific recommendations or views in this research report.

Analyst Certifications and Independence of Research.

Each of the 22V Research analysts whose names appear on the front page of this report hereby certify that all the views expressed in this Report accurately reflect our personal views about any and all of the subject securities or issuers and that no part of our compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views of in this Report.

22V Research (the “Company”) is an independent research provider. The Company is not a member of the FINRA or the SIPC and is not a registered broker dealer or investment adviser. 22V Research has no other regulated or unregulated business activities which conflict with its provision of independent research.

22V Research, LLC is a professional services and independent publication organization. 22V Research, LLC is not a securities broker-dealer, not a member of the Financial Industry Regulatory Authority (FINRA), not a registered investment advisor (RIA) and not a member of SIPC.

Securities transactions, when offered, are offered by 22V Securities, LLC through LPS Capital, LLC. Certain employees of 22V Securities, LLC are dually registered as securities representatives of LPS Capital, LLC or Analyst Hub Securities, LLC. 22V Securities, LPS Capital and Analyst Hub Securities are members FINRA, SIPC.

https://brokercheck.finra.org/

Current Ratings Definition.

SECTOR OUTPERFORM: An “outperform” rating anticipates the company will outperform the S&P Regional Banking Index (peer group).

SECTOR PERFORM: A “market perform” rating anticipates the company will perform in line with the S&P Regional Banking Index (peer group).

SECTOR UNDERPERFORM: An “underperform” rating anticipates the company will underperform the S&P Regional Banking Index (peer group).

Limitation Of Research And Information.

This Report has been prepared for distribution to only qualified institutional or professional clients of 22V Research Group. The contents of this Report represent the views, opinions, and analyses of its authors. The information contained herein does not constitute financial, legal, tax or any other advice. All third-party data presented herein were obtained from publicly available sources which are believed to be reliable; however, the Company makes no warranty, express or implied, concerning the accuracy or completeness of such information. In no event shall the Company be responsible or liable for the correctness of, or update to, any such material or for any damage or lost opportunities resulting from use of this data. Nothing contained in this Report or any distribution by the Company should be construed as any offer to sell, or any solicitation of an offer to buy, any security or investment. Any research or other material received should not be construed as individualized investment advice. Investment decisions should be made as part of an overall portfolio strategy and you should consult with a professional financial advisor, legal and tax advisor prior to making any investment decision. 22V Research Group shall not be liable for any direct or indirect, incidental or consequential loss or damage (including loss of profits, revenue or goodwill) arising from any investment decisions based on information or research obtained from 22V Research Group.

Reproduction And Distribution Strictly Prohibited.

No user of this Report may reproduce, modify, copy, distribute, sell, resell, transmit, transfer, license, assign or publish the Report itself or any information contained therein. Notwithstanding the foregoing, clients with access to working models are permitted to alter or modify the information contained therein, provided that it is solely for such client’s own use. This Report is not intended to be available or distributed for any purpose that would be deemed unlawful or otherwise prohibited by any local, state, national or international laws or regulations or would otherwise subject the Company to registration or regulation of any kind within such jurisdiction.

Copyrights, Trademarks, Intellectual Property.

22V Research Group, and any logos or marks included in this Report are proprietary materials. The use of such terms and logos and marks without the express written consent of 22V Research Group is strictly prohibited. The copyright in the pages or in the screens of the Report, and in the information and material therein, is proprietary material owned by 22V Research Group unless otherwise indicated. The unauthorized use of any material on this Report may violate numerous statutes, regulations and laws, including, but not limited to, copyright, trademark, trade secret or patent laws.