It is often talked about by traders and others on TV that when they think Gold is going to increase, they will tell people to buy $GDX as the way to do it.  The idea being that the gold miners have a lot of leverage to increases in gold prices and hence will outperform gold.  What we are seeing before our eyes is why that doesn’t work.  Regardless of gold increasing in price, the stocks of the gold miners, are just that, STOCKS.  When the market is selling off, they are selling off everything.  Gold actually had a pretty good day today, up about $15, yet $GDX was down.  It gapped up on the open, likely because the gold futures were up nicely, but then $GDX just sold off all day long.

If you overlay the $GDX on top of $GLD (or /GC) you will see a dramatic under performance of the $GDX vs Gold itself.  I looked out over the past 9 months, 1 year and 3 years.

Lesson, if you think Gold is going to go up because of what is happening to the currencies, or you want to use it as protection during the high volatility we are in, buy $GLD (or $IAU) and forget about playing it through the miners.

#contangoetfs