Options Corner: Surging Precious Metals Demand Could Lift Lagging Barrick Gold

While economic concerns triggered by President Donald Trump's tariffs represent one of the biggest sources for global headlines, the precious metals sector has been a cynical beneficiary. As anxieties have risen, demand for gold has skyrocketed, potentially boding well for the mining complex. Intriguingly, despite earlier choppiness, resource producer Barrick Gold Corp GOLD appears to be signaling an imminent breakout move.

Fundamentally, bullishness toward GOLD stock makes plenty of sense. Historically, the underlying precious metal has performed well as a safe-haven asset, absorbing capital from investors seeking wealth protection or stability. Right now, gold demand is simply on fire, with major banks buying bullion bars abroad and transporting them back home via commercial jets.

It's not just affluent individual customers that are contributing to the modern-day gold rush. Earlier this year, the World Gold Council reported that total gold demand — which includes central banks — set fresh records. Further, with key inflation data coming in lower than expected, the Federal Reserve theoretically has a path toward interest rate cuts. Such a dynamic could also be net bullish for the metal.

To be fair, while gold has soared to blistering heights, the mining complex has lagged the asset, largely due to rising costs squeezing profitability. Nevertheless, as the metal continues to march higher due to the fear trade, the pressure on the bottom line may ease. If so, GOLD stock appears to be a compelling idea, both as a near-term transaction and a longer-term investment.

Speculators Could Front Run a Breakout in GOLD Stock

Perhaps the most compelling argument for future upside in GOLD stock isn't in the fundamental narrative but rather the technical. At this juncture, the equity appears to be charting a bullish pennant formation.

Somewhat resembling a sideways triangle pointing to the right, a bullish pennant is a three-phase pattern, featuring an initial rally, a subsequent consolidation (which forms the iconic pennant shape) and the eventual breakout move. In the case of GOLD stock, the first phase appears to have materialized in late January. It also appears that the security is in the final section of the second phase just prior to a possible breakout.

Now, what makes the pennant in GOLD stock so enticing is the volume. Under a classic pennant formation, volume rises in conjunction with the stock price during the initial rally. In the consolidation phase, the volume fades. That's exactly what's on the chart as of this writing.

Of course, there's no guarantee as to what might happen next. Still, with the combination of compelling fundamental catalysts and a strong technical setup, GOLD stock certainly should be on the radar.

On a final note, GOLD stock as a baseline carries a largely neutral bias. Using pricing data over the past six years, a long position held for any eight-week period has a 50/50 chance of being profitable. However, during those eight weeks, the median positive return is 11.29% while the median negative return is 8.91%. Therefore, the bulls tend to have a slight edge in the risk-reward department.

Under circumstances of modest upside (weekly returns up to 5%), a long position over eight weeks also carries a 50/50 success ratio. However, bullish sentiment tends to be pushed forward, with long odds peaking at nearly 61% in the third week following a modest upside.

Considering that GOLD stock has been steadily marching higher since late February, this framework also adds to the equity's speculative appeal.

Charting a Bullish Strategy for Barrick Gold

While the storyline surrounding Barrick Gold is arguably attractive, it all comes down to practicality. Attempting to front-run a technical pattern is challenging because it's a matter of good old-fashioned guesswork.

That said, one basic approach is to consider buying a call option straight up. Specifically, speculators may be interested in the $20 call expiring June 20 of this year. At the time of writing, the premium (ask) for this derivative is 81 cents (or $81 when applying the 100-share option multiplier). This means 81 cents needs to be added to the current share price for the trade to break even or about $19.25.

Given the implications of the bullish pennant formation, GOLD stock may aim for the prior high in October last year, which was just above $21.

Another riskier trade is to utilize the leverage of options and buy a bull call spread for the options chain expiring April 11. The highest-reward trade available that still makes rational sense based on statistical data is arguably the 18.50/19.50 bull spread.

The above transaction requires GOLD stock to be at or above the $19.50 short call strike at expiration. Should the bullish pennant materialize as speculated, this could be a very lucrative transaction, considering its maximum payout of almost 133%.

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