Mining for answers in gold, silver

The recent drop in precious metals has created a fair amount of speculation, much of it centered on competition from cryptocurrencies.

Two big risks are whether Bitcoin actually replaces gold and silver as a hedge and, of course, whether the overall market sees another severe downturn that takes all assets lower. We saw the latter in March, when correlations turned to 1 as all classes sold off indiscriminately.

But as indicated on the intraday chart above, from Market Rebellion analyst Bryan McCormick, gold (blue line) hasn’t been clearly tied to Bitcoin (orange)–inversely or otherwise. And even Mike Novogratz of crypto firm Galaxy Digital appeared to downplay their relationship on a CNBC interview this week, saying instead that $BTC’s recent surge has been a phenomenon unto itself.

Since the last week’s selloff in precious metals, our unusual activity scanners have found the following bullish option trades in the SPDR Gold Shares ($GLD) and iShares Silver Trust ($SLV) exchange-traded funds:
–$SLV: On Nov. 27, 5,000 30June $23 calls were bought for $1.88 below open interest of 7,250 contracts while 5,000 30June $29 calls were sold for $0.85 above open interest of 1,587 in a vertical spread with shares at $21.08.<BR>
–$GLD: On Nov. 30, 4,250 December *2021* $190 calls were bought for $6.55 above open interest of 1,399 contracts while 8,500 December *2021* $230 calls were sold for $2.45 above open interest of 170 in a ratio spread with shares at $166.18.
–$GLD: On Dec. 1, 7,500 January $179 calls were bought for $1.54 above open interest of 4,329 contracts while 7,500 January $187 calls were sold for $0.62 below open interest of 10,005 in a vertical spread or roll-down with shares at $170.31.

For gold, the $1,800 spot price could be something to watch, as it had been a key level going back several years (see chart below). That coincides roughly with $GLD at $170, which was a consolidation level in July.

An important milestone for $BTC remains the elusive $20,000 mark. If that resistance is broken, we might get better idea of how all these scales will end up tilting.

Silver is vulnerable to the same downside risks as gold and had been much more related to $BTC recently. However, as fund manager Bill Fleckenstein told Market Rebellion, the white metal is a “wild beast” that can move sharply in either direction for no apparent reason. And its industrial use can be a bullish factor as well, especially if basic materials continue to gain strength with cyclical stocks.

Disclosure: I am long $GLD and $BTC.