Is it Too Late to Short Gold Mining Stocks?
Ron DeLegge, Editor
August 6, 2013
The Great Gold Bust of 2013 is a major investment theme we’ve been shouting about even before it turned into a full-fledged market crash. It’s been shock and awe for gold bugs, but not us.
The SPDR Gold Shares (NYSEARCA:GLD), which is linked to the price of gold bullion, is down -1.40% today, -23% year-to-date, and -32% from 2011 peaks. Gold focused ETFs that aim for inverse or short exposure are (NYSEARCA:GLL) hot performers, but one particular bear trade has been even better; shorting gold mining stocks.
Since the start of the year, gold mining stocks (NYSEARCA:GDX) have been crushed -46%.
And while analysts and gold experts were telling their clients to buy gold and gold mining stocks, we’ve repeatedly said to do the exact opposite.
In our time stamped Weekly ETF Pick from Feb.14, 2013 we wrote to subscribers:
“Despite a modestly rising stock market, the Market Vectors Gold Miners (GDX) has lagged both the broader U.S. stock market along with the SPDR Gold Shares (GLD) by a very significant margin. At present, GDX trades around $41.50 and is well below both its 50 ($44.41) and 200 ($46.06) day moving average. Buy the Direxion Daily Gold Miners Bear 3x Shares (DUST) at these levels.”
We bagged a +29% gain on our DUST trade and in that same report, we told our subscribers to buy JUN 40 GDX put options at $190. On our GDX puts we hit a grand slam with a +525% gain, and we exited that position in early June at $1,200 per contract.
Fast forward to now.
Gold miners have enjoyed a +14% run since June 26, but as we wrote in our Aug.1 report:
“It’s just the sort of counter trend bounce you’d expect from a dead fish that has fallen off a 2,000 foot skyscraper.”
Meanwhile, gold miners are nuclear bombing shareholders with multi-billion dollar losses.
A few days ago, Barrick Gold Corp. (NYSE:ABX), the world's largest gold miner, reported the second largest quarterly loss ever ($8.56 billion U.S.) for a publicly traded Canadian company. (Nortel Networks' $19.4 billion Q2 loss in 2001 still holds the record) The company also slashed its dividend by 75%.
“Cheap” valuations have seduced value investors into buying gold miners. And they’ve been quickly converted into victims of what we call the “value trap.”
WATCH: How Gold Experts are Misleading the Public
According to most recent 13F filings, hedge fund titans like George Soros, David Einhorn, and John Paulson are still long and wrong about gold mining stocks. And shamefully, guru based trading platforms and guru focused funds (NYSEARCA:GURU) have massacred their gullible followers by closely mimicking these ill-timed hedge fund bets.
At the end of July, hedge funds and speculators raised their net-long position in 18 commodities, including precious metals, to a six-week high. Clearly, market sentiment was overly bullish on metals.
But instead of misinterpreting market sentiment data and depressed valuations as a bottom, like gold experts have done, we used it as a contrarian signal and high profit setup.
In our latest Weekly ETF Picks published on Aug. 1, we wrote:
“Buy the Direxion Daily Gold Miners Bear 3x Shares (NYSEARCA:DUST) between $74-75. DUST aims for triple opposite daily performance to mining stocks. Gold miners are a leveraged play on physical metals and if the next leg down in metals prices takes hold, as we suspect, miners should lead the way down.”
How did it turn out? We recorded a time stamped one-week 35% gain on our DUST trade. Furthermore, we’ve already bagged a 110% gain on our tandem GDX put options trade offered up in that same report.
Sir John Templeton was right when he said you can’t “produce superior investment performance if you buy the same assets at the same time others are buying.”
The next big and shocking move in the gold market is yet to come. And if you think gold experts look clownish right now, just wait.
The ETF Profit Strategy Newsletter uses a combination of technical analysis, market sentiment, and common sense to be on the right side of the market. Since the beginning of the year, 78% of our ETF picks have turned a profit. (through 6/30/13)
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