Is it Too Late to Short Mining Stocks?

Ron DeLegge
December 2, 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 (GLD - News), which is linked to the price of gold bullion, fell -2.44% today. It's down -26% year-to-date and -35% from 2011 peaks.

Although gold focused ETFs that aim for inverse or short exposure are (GLL - News) hot performers, one particular bear trade has been even better; shorting gold mining stocks.

Since the start of the year, gold mining stocks (GDX - News) have been crushed -53%.

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:

"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."

DUST has skyrocketed 80% since our February alert and in that same report we told our subscribers to buy JUN 40 GDX put options at $190. Our latter trade was a grand slam with a +525% gain, and we exited that position in early June at $1,200 per contract.

Meanwhile, gold miners are nuclear bombing shareholders with multi-billion dollar losses and dividend cuts. Is the worst over?

Hedge fund titans like George Soros, David Einhorn, and John Paulson have been long and wrong about gold mining stocks (GDXJ - News). And shamefully, guru based trading platforms and guru focused funds have massacred their gullible followers by closely mimicking these ill-timed hedge fund bets. 

Instead of misinterpreting market sentiment data and depressed valuations as a bottom, like gold experts have done, we've used it as a contrarian signal and high profit setup.

In our Weekly ETF Picks published on Aug. 1, we wrote:

"Buy the Direxion Daily Gold Miners Bear 3x Shares (DUST - News) 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.

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. That means more big opportunities for correctly positioned precious metals bears.

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, 74% of our ETF picks have turned a profit. (through 9/30/13)

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