With gold near a record, most miners should put up ridiculous earnings in the year ahead, which should make their shares act like tech circa 1998, right?
Nope. The biggest miners, whose shares populate the GDX gold miner ETF, did outperform gold (represented here by the GLD ETF) during most of its recent epic run, just as you’d expect. But in April the two trends diverged, and lately the divergence has become a chasm. Gold is up 22% in the past 12 months and the big miners are, as a group, virtually unchanged. read more
From Jesse: The Almost Shocking Year-To-Date Divergence Between Gold and the Gold Miners
One can speculate endlessly for the reasons, but it looks to me that there is a paired trade going on, of long bullion and short miners. That is similar to one of my favorite paired trades this year, long bullion and short a broad stock index or the financial sector.
If this is true, if gold breaks out and the stock market recovers somewhat, the miners will play catch up.
But if the stock market falls apart, the miners are much more vulnerable to a selloff than bullion. That is the reason for the paired trade I believe.