The woes of gold mining stocks and
, in particular the Market Vectors Gold Miners ETF (NYSE:
), have been a frequent topic of conversation among traders for
over a year now. The story goes like this: Gold miners vexed
traders and investors by not rising in unison with gold futures.
That much is evident by the fact that GDX, the largest gold
miners ETF by assets, is down 31 percent over the past two
Over the same time, the SPDR Gold Shares (NYSE:
), the largest ETF backed by holdings of physical gold, is up 17
percent. Not surprisingly as ETFs such as GLD have recently
faltered (that fund is off 6.3 percent in the past 90 days), the
losses have been worse for the likes of GDX. Over the same 90-day
period, GDX is down 13.1 percent, more than double GLD's
Ongoing downward spirals for GDX and its constituents might be
the reason George Soros parted ways with a significant chunk of
his stake in that ETF during the fourth quarter. Soros owned 1.5
million shares of GDX at the end of the fourth quarter, compared
2.3 million shares at the end of the third
Soros also sold 400,000 shares of the Market Vectors Junior
Gold Miners ETF (NYSE:
) during the fourth quarter to bring his stake in that ETF to 2
David Einhorn apparently has a different view of the matter.
Einhorn's Greenlight Capital owned approximately 6 million shares
of GDX at the end of the fourth quarter,
according to the hedge fund's most recent 13F
. That is roughly the same amount of GDX Greenlight owned at the
end of the previous quarter.
While this does not amount to a
Bill Ackman versus Carl Icahn type of tussle
, it looks like Soros was right to trim his exposure to GDX and
GDXJ. On the other hand, Einhorn is dealing with a falling knife
On February 5, Chris Kimble of the eponymous Kimble Charting
noted that if GDX violated support around
, the ETF was doomed to more downside. That was just nine trading
days ago and today GDX is off more than three percent on volume
that has already surpassed the daily average. The ETF is
struggling to hold the $40 mark.
Making matters all the more dangerous for Einhorn and his
fellow GDX investors is the fact that gold futures are at a
critical juncture. This week, bullion has struggled to stay above
the psychologically important $1,650 per ounce area.
As Kimble notes, further deterioration from here
could mean gold futures test $1,300
. That would mean GLD would likely fall to around $130, a roughly
16 percent decline from current levels.
While it must be noted that GDX does not move with GLD on a
dollar-for-dollar basis, it also cannot be forgotten that the
former's recent slide is more than twice as worse as the
latter's. If that trend holds, gold futures do test $1,300 and
GLD falls 16 percent, GDX could tumble 30 percent or more.
That means the Direxion Daily Gold 3X Bear Shares (NYSE:
) becomes all the more alluring. As it is, when accounting for
Friday's gain of more than 10 percent, DUST is up more than 39
percent in the past month. As a leveraged ETF, DUST is not meant
to be held for long time frames, but the returns indicate that it
is the best way to play gold miners in the short-term.
For more on gold miners, click
(c) 2013 Benzinga.com. Benzinga does not provide investment
advice. All rights reserved.
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