Sell GLD, Buy GDX ?

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According to other observers, we could be in the early stages of the pivot point where the ratio of the gold miners ETF, (the GDX) vis a vis the gold bullion ETF (the GLD) changes course and reverses the downtrend that's been in place since the October 2007 peak, when gold outperformed the miners for some six months. It is generally thought that during a gold bull market, due to their leverage to the metal, the miners should normally outperform gold. Lance Lewis, over at financial site Minyanville, chimes in:

"There are a number of reasons why we probably saw the metal outperform the gold shares over the six months following October 2007. But the point is, like the unusual environment during that half year, it's equally unusual for gold to outperform the shares. And we may now be seeing the action revert back to the historical norm. This is going to catch many people, especially those who view miners as underperformers (including many hedge funds that are "long GLD/short the GDX," a trade that has basically "worked" since October), off guard.

After all, how many times have you been told by talking heads, "If ya wanna buy gold, buy the GLD, but don't buy the miners. They're underperformers." These talking heads don't understand the gold market - and they sure don't understand the economics of the gold miners.

If the downtrend in the GDX/GLD ratio is finally smashed, we'll see a popular hedge fund "trade" (short GDX/long GLD) unwind as well. And the gold shares in the GDX will be the beneficiaries. Let's see what happens."

With at least one OPEC official raising a white flag and declaring that they are "no longer in charge" of the oil market, expect the action to get even more entertaining (except if you have to fill up anytime soon) and although a top has probably not been etched into the record books yet, the unfolding in that market will drive whatever happens in the other pits short-term. Gold needs to finish above $940-$953 before talk of higher ground has meaning. It also needs to hold $900-$915 even if oil starts to head towards, or reaches as low as $90 per barrel.

Happy Trading.