I’ve been thinking a lot about gold lately. Which is unusual since I have mostly ignored it in the past. I don’t like the fact that it is expensive to trade, pays no dividends, and has limited commercial value other than as jewelry.

But what I do like about gold is that it is real and it is scarce. Unlike cryptocurrencies, which are created out of thin air and a new one seems to pop up every week.

Until now, I primarily thought of gold as a hedge against geopolitical chaos. And with Russia threatening to invade Ukraine, for that reason alone gold may be worth owning.

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But I also believe that gold’s spotty reputation as an inflation hedge may prove valuable later this year. Bitcoin (BTC), the “gold standard” (pardon the pun) of cryptocurrencies, has hit the skids lately.

While inflation was soaring over the past three months, Bitcoin lost half its value. And while the stock market was tanking last week, Bitcoin barely budged.

The recent extreme stock market volatility may be the wake-up call that many investors have been waiting for. Inflation is looming, and the release of last week’s policy statement from the Fed did not help the situation.

Add it all up, and what you have is a stock market on shaky ground with no clear solution for inflation. If Bitcoin cannot live up to its reputation as being digital gold, then real gold may be the big winner.

RINGing the Bell

That said, I still don’t advise owning physical gold for the reasons cited above. That’s why I recommended shares of the SPDR Gold Shares ETF (GLD) last April. The fund owns certificates that are exchangeable for gold, so its price moves in lockstep with the yellow metal.

Since then, GLD has appreciated 5%. That’s okay, and I still like GLD as a direct play on the price of gold. However, there is another way to participate in the price of gold that could be more profitable.

The companies that mine gold are highly leveraged to its price since the cost of extracting it from the ground is relatively fixed. When the price of gold increases, miners’ operating margins expand by a greater amount.

That’s why I like the iShares MSCI Global Gold Miners ETF (RING). Its top four holdings, Newmont (NYSE: NEM), Barrick Gold (NYSE: GOLD), Wheaton Precious Metals (NYSE: WPM), and Gold Fields Ltd (NYSE: GFI), account for roughly half of the fund’s total assets.

Since peaking above $32 last summer, RING has fallen back into the mid $20s. But if my expectation for the economy proves true, gold miners should be one of the top performing sectors this year. And if that happens, RING’s share price could take off.

Double or Nothing

If you’re feeling bold, you can amplify RING’s performance by purchasing a call option on it. A call option increases in value when the price of the underlying security goes up.

Last week while RING was trading near $26, the call option that expires on July 15 at that price could be bought for $2.40. For this trade to be profitable, RING must appreciate at least 9% by expiration.

Let’s say RING rises to $31 by expiration. At that price, the intrinsic value of our option would be $5. That’s more than twice what we paid for it, or a gain of better than 100% in less than five months.

Of course, I could be wrong in which case this option may expire with no value at all. For that reason, you may want to consider a less risky approach to cashing in on the stock market’s unpredictable behavior this year.

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