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Buy the dip on this gold stock

Commentaries & Views

As U.S. equities continue to bounce back -- the Dow is heading toward a second-straight monthly win -- gold prices and the appeal for the safe-haven asset have dulled. Mining stock AngloGold Ashanti Limited (NYSE:AU) is nursing a 4.5% May deficit, but there's a silver lining; AU has pulled back to a trendline that has historically bullish implications for the next month.

Specifically, AU has come within one standard deviation of its 40-day moving average following an extended period above the trendline, defined for this study as having traded north of the moving average 60% of the time in the past two months and in eight of the last 10 trading days. According to Schaeffer's Senior Quantitative Analyst Rocky White, the equity has seen four similar pullbacks within the past three years, which has resulted in an average 21-day gain of 8.6%.

From the stock's current perch at $24.08, a bounce of similar magnitude would put AU around $26.40, a chip-shot from its May 18 seven-year high of $27.99. Longer-term, the shares have doubled in the last 12 months.

Daily Stock Chart AU

Calls are incredibly popular in the options pits, despite limited absolute volume. In the past 10 days, 2,192 calls have changed hands on the the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), compared to a meager 230 puts. The resultant call/put volume ratio of 9.54 sits in the 90th percentile of its annual range, suggesting a healthier-than-usual appetite for bullish bets of late. 

Meanwhile, the stock's near-term options are attractively priced at the moment. AU's Schaeffer's Volatility Index (SVI) stands at 62%, in the 22nd percentile of its annual range. This indicates that now is an attractive time to jump aboard the streaming name with options.

By Patrick Martin, Managing Editor at Schaeffer’s Investment Research

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