Gold has had an interesting year. Not because its price has remained well above the US$1,000 an ounce mark. A stubborn resistance point that once breeched, according to gold buffs, would become a support point that would vault gold to US$2,500 to US$3,000 levels.

What is really interesting is how bullish scenarios for gold have changed. Historically, the price of gold was based on its value as the ultimate crisis insurance. The last place investors could go to protect their assets in a world where paper currency was being devalued.

More recently, gold has reacted positively during periods of market stability. And gold has lagged when markets are in turmoil. Exactly the opposite of what you would expect.

What this comes down to, is how investors view the US dollar. If the greenback remains the ultimate reserve currency, then during periods of turmoil, investors will gravitate into US dollar assets. The US dollar will strengthen and, since gold is valued in US dollars, its price will decline.

On the other hand, when markets are complacent, investors begin to look at the US dollar as an asset. On that level, it does not look particularly attractive. What with US politicians predilection to spend like drunken sailors. Typically in that light, the US dollar declines in value, in the process, pushing up the price of gold.

In order to get gold back on the crisis insurance track, there has to be a crisis of confidence in the US dollar. And that is unlikely, unless inflation takes hold in a serious way. And we are not talking about 2% to 3% annual inflation. We’re talking serious double digit hyper inflation that has serious consequences for world currencies. Especially the US dollar!

Presumably, given the recent price action in gold, the market does not believe that to be a likely scenario. Which implies that gold is unlikely to rally in the short term. At least not in Canadian dollar terms.

Assuming the current environment continues (i.e. little or no inflation), gold and gold stocks will be off the active traders radar screen. However, if you are an options trader, this sector becomes an attractive underlying security for mildly bullish option writing strategies.

Writing covered calls or cash secured puts (sometimes referred to as “underwriting”) on gold stocks continues to be a strategy that remains attractive. In fact, gold is one sector where option writing has been a particularly successful long-term strategy.

The reason… gold stocks are quite volatile intraday. But longer term, tend to linger in a trading range. The intraday volatility translates into above average premiums. And because of the typical trading range for gold stocks, you get frequent opportunities to write attractive options.

The current environment is no different. You might look at option writes on stocks like Barrick Gold Corp. (symbol ABX, recent price $40.50), Goldcorp (G, $40.60), and Kinross (K, $18.45).

Take a look at buying Barrick shares and writing the ABX July 42 calls at $2.30. Or conversely, writing the July 40 puts at $2.50.

With Goldcorp, you could buy the shares and write the July 42 calls at $2.20. Or alternatively, write G July 40 cash secured puts at $2.50.

Finally, with Kinross, buy the shares and write the K May 19 calls at 0.85 cents. Or write the K May 18 puts at 0.90 cents per share.