Gold Miners Are Beating the S&P 500
If you drop a penny from your pocket, it will be a very small bounce. But if you drop the penny from atop the Empire State Building, the magnitude of the bounce will be great.
In the case of mining stocks, that bounce from a very long and painful fall has been so great – they’re now collectively outperforming the S&P 500 (NYSEARCA:SPY) year-to-date. It’s been a long while since we could put “gold miners” and “outperformance” in the same sentence!
AUDIO: 2014, Year of the Bear for Chinese Stocks?
From 2011 to 2013, ETFs tied to large-cap gold mining stocks (NYSEARCA:GDX) lost 79%, while small-cap miners (NYSEARCA:GDXJ) crumbled 111.58%. The Direxion Shares Daily Gold Miners Bear 3x Shares (NYSEARCA:DUST), which aims for triple daily opposite performance to mining stocks, skyrocketed 179% and provided plenty of tradable opportunities along the way. Yet, after such a large and breathtaking decline for both GDX and GDXJ, a significant bounce was almost inevitable.
Although mainstream media outlets and retail investors are just taking notice, the surge in gold miner ETFs began weeks ago when overly bearish sentiment signaled a fast and clear profit opportunity. Were you ready?
Via our Weekly ETF Picks one 12/26 we wrote:
“This year will be the third consecutive year of losses for gold mining stocks. But once year-end tax loss selling is over, we’re anticipating a bounce in beaten down gold miners in January. It remains to be seen whether this bounce will become a bigger trend change for GDX from down to up, but it’s nevertheless a short-term profit opportunity. We’re buying the Market Vectors Gold Miners ETF (GDX) at $21 and our tandem options trade is to buy the GDX JAN 2013 20 call options (GDX140124C00020000) at around $140.”
Since our 12/26 buy alert, we’ve already bagged a blended two-week gain of 27% on our tandem GDX options trade and we’re still long GDX shares.
As readers familiar with our research know, last year we were consistently bearish on gold (NYSEARCA:IAU) and precious metals (NYSEARCA:GLTR) along with mining stocks.
In fact, our largest ETF gainer last year was the 2/14 alert to buy GDX JUN 2013 40 put options at $190 per contract. As we expected, GDX crashed and in our 5/15 alert we exited the trade with a 525% gain, selling our remaining position at $1,200 per contract. This trade took three months to fully develop, but it was worth the wait. Patience – not just good timing – is a defining hallmark of all great investors and traders. Cultivate the habit!
The ETF Profit Strategy Newsletter uses technical and fundamental analysis along with market history and common sense to keep investors on the right side of the market. In 2013, 70% of our weekly ETF picks were winners.
Follow us on Twittter @ ETFguide