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5 ways to play a gold breakout

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Professional and retail traders are aligned on where they think the yellow precious metal is going next. Both are increasing their bets that gold is headed higher the rest of 2015.


The sentiment change couldn't have come at a better time for the metal, which is now up just 2.5 percent on the year after a 7 percent pullback from late January. A look at the charts also shows that the 50-day moving average and the 200-day moving average have basically flatlined.

Translation? Gold is in no man's land.


Source: FactSet

But the retail investor in the last week started to show increasing interest.

The No. 1 one way they are playing it is through the purchase of the Daily Gold Miners Index Bull & Bears 3X Shares, which tracks three times the performance of a group of gold stocks that trade on the NYSE.

The leveraged ETF, oddly enough, was one of the top 20 securities traded this week among the 6 million accounts serviced by TD Ameritrade.

"People have really bought into this story," said JJ Kinahan, chief strategist at TD Ameritrade.

That story, according to Kinahan, is a rebound in commodity prices, led by oil, as the dollar tops out and geopolitical worries continue. Central bank policies driving many government bonds to a negative yield should boost the attractiveness of gold.

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The trade's paid off for the small investor this week as that ETF jumped nearly 4 percent.

Although often called the "dumb money," the retail investor, according to that exclusive data from TD, has been doing pretty well as of late. Last week we highlighted the increasing purchases of American Express in the wake of a big dip by the blue chip. AMEX shares were up more than 3 percent this week.

At the end of January, we highlighted that Facebook had become the new darling of the retail investor. The shares are up more than 5 percent since then.

But now the Main Street trader is on the same side as the steely eyed ones on Wall Street.

"We have witnessed strong correlation between net positions in gold and silver at Comex and gold and silver price(s)," said Michael Dudas, metals industry analyst at Sterne Agee. "Long traders have started to enter the marketplace again over the past few weeks on safe haven demand, given uncertainty in the euro zone."

The money play:

One could follow the others into the "NUGT" leveraged ETF, but make sure you have the risk tolerance for that one. It can move down quickly in a hurry.

The individual miners will also get a lift if gold chooses to breakout here. Dudas' favorite names are Newmont Mining, Gold Resource, Coeur Mining and Agnico Eagle Mines.