Speculative Favorites: The Options Market's Top Gold Picks

After peaking in early November, gold prices have descended rapidly from recent heights. The gold correction has been so sharp, in fact, as to warrant speculation of another $100 drop in the price of the commodity.

Whether this materializes or not will depend on several factors, but one thing is clear: The recent correction in gold prices is likely to find the physical buyers coming out in droves and giving the price some support.

Pricing dips on the precious metal are being supported by a robust performance in the physical market, where gold has yet to lose its luster, explains Rhonda O'Connell at Mineweb.com.

As gold prices pushed above the $1,400 mark, scrap gold sales, not unexpectedly, went through the roof. But even post-November drop, physical demand for gold, in the form of jewelry, coin, and bar, has seen continued upside -- a marked departure from past gold bubbles, where artificially high, unstable pricing has quashed jewelry demand.

Perhaps not surprisingly, most of this physical market demand is coming from rapidly growing emerging market economies. "Demand in China has been particularly robust as investors hedge against increasing inflationary pressures and the government continues to streamline the domestic market," writes O'Connell. And there are reports from Mumbai that Indian gold imports are expected to reach 750 tons this year, almost 200 tons more than in 2009.

Will this physical demand be strong enough to support gold prices during this short-term correction? That's a tough question, but for clues we can look at what options traders are thinking ...

Here's a list of eight gold stocks with bullish options sentiment. These stocks have a large number of open call option positions relative to put option positions. (Call options traders bet on a stock's upside, while put option traders bet on a stock's downside.)

Options traders seem to think these gold stocks will continue to see some upside in the near term. And since options traders tend to be pretty sophisticated investors, it's not a bad idea to pay attention to their trades. (Click here to access free, interactive tools to analyze these ideas.)

Options data sourced from Schaeffer's. The list has been sorted by the put/call ratio.

Interactive Chart: Press Play to see how market caps have changed for all the stocks mentioned above.

Kapitall's Eben Esterhuizen and Alicia Sellitti do not own shares of any companies mentioned.