It’s about to get way worse for gold—and here’s how I’m cashing in: Trader

Gold mining stocks are sliding by more than 6 percent on Wednesday, and one chart-minded trader is placing a bet that will show a considerable profit if the miners continue to slide.

Gold is down more than 11 percent in the past 3 months, and gold mining stocks have followed, plunging some 30 percent during the same time. This is a dramatic reversal from the first seven months of the year, which saw the Market Vectors Gold Miners ETF (GDX) rise by more than 120 percent.

And unfortunately for those hanging on the once high-flying miners, "the gold market looks like it wants to continue lower," according to Todd Gordon of

"You can see that the market has been in a pretty consistent downtrend here through 2016, and it looks like we're just set to continue," he said Tuesday on CNBC's "Trading Nation."

One of the biggest problems for gold has been the U.S. dollar, which rose considerably against a basket of major currencies on Wednesday. A stronger dollar is bad news for gold prices, since if the inherent value of gold stays stable while that of the dollar rises, it will take fewer dollars to buy the same amount of gold.

From a chart-based standpoint, Gordon sees trouble for some of GDX's biggest holdings, naming Barrick Gold, Newmont Mining and Goldcorp as three companies that are poised to drop further. All three have been in a "solid downtrend" over the last several months, and "bear flag" patterns indicate that the declines will continue, says Gordon.

Rather than focusing on any particular name, Gordon chooses to bet against the GDX. Specifically, he is buying the December 20-strike puts and selling the December 18-strike puts for a total cost of 31 cents per share, or $31 per options contract.

Gordon's trade will see maximum profits if the GDX closes below $18 at the trade's expiration on December 16. In that case, Gordon will see a profit of $169, more than five times the $31 he is risking.

On the other hand, if the GDX staunches its fall and closes above $20, his entire options premium will be lost.


Trades to Watch

Trader Bios


Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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