The easiest trade in the world (that I think is wrong but seems to work anyway)

Quote from tradethis:

Okay here it is: I've been a gold/silver bull as a long term thesis for years. I've chosen to play this through the gold stocks because as we all know, they have the leverage to rising prices, right, right? Well, f3ck that. It hasn't worked. Sure some of the small names have been great but then there's the GG, AEM, KGC, NEM, ABX, and the list goes on and on. So here it is, the easiest trade in the world that I think "should" not work but the market in its infinite stupiddom (like wisdom but the opposite) seems determined to make work:

1. Short any large cap gold stock. Should gold go up, short more.
2. If gold goes flat for a while, the stock will get creamed.
3. If gold goes down, ka-ching. You make a pile of money.
4. Rinse and repeat.
5. No risk. Easiest trade in the world. (for example, check out Newmont, 9 month downtrend. Even when gold has been up for those 9 months)
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why not buy gold short the stocks
 
Quote from deadbroke:

Welcome to ET - you fit right in.

Watch the new HERD arrival in action, already brandishing the collective CREED .... "No risk. Easiest trade in the world"
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wtf are you doing here:confused:
 
$1705 gold....wonder how much gold stocks will be DOWN tomorrow. Or will they finally, finally, finally become the leveraged play that they should be?
 
<a href="http://www.flickr.com/photos/11362126@N04/6022608734/" title="gdx_gld_gc by kalasend, on Flickr"><img src="http://farm7.static.flickr.com/6188/6022608734_1bfcfa5a03_b.jpg" width="1024" height="444" alt="gdx_gld_gc"></a>

Thought you would like this picture.
Orange line is GDX (gold miners ETF, pls let me know if it isn't a good basket) to GLD ratio
Blue line is gold's front month future

It looks like their correlation got broken in early Apr.
And then there were some short periods of getting inline. But currently it's out of sync at its largest scale so far...
 
Quote from kalasend:

<a href="http://www.flickr.com/photos/11362126@N04/6022608734/" title="gdx_gld_gc by kalasend, on Flickr"><img src="http://farm7.static.flickr.com/6188/6022608734_1bfcfa5a03_b.jpg" width="1024" height="444" alt="gdx_gld_gc"></a>

Thought you would like this picture.
Orange line is GDX (gold miners ETF, pls let me know if it isn't a good basket) to GLD ratio
Blue line is gold's front month future

It looks like their correlation got broken in early Apr.
And then there were some short periods of getting inline. But currently it's out of sync at its largest scale so far...
More...

what does 'front month future' mean?
 
Quote from SnakeEYE:

what does 'front month future' mean?
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It's the latest, soonest-to-expire future contract. It is the closest you can get to spot gold price, if you choose to trade gold futures.
 
It's true that gold stocks have for the most part been one big disappointment. I think that this is because expectations for the gold stocks have changed. People used to buy gold stocks at silly high P/Es, like 40 or 50. Now people buy at P/Es of 16 to 30.

If you just want leverage on the gold price there are lots of better ways to do it than buying gold stocks. You have futures, calls on futures, ETFs, calls on ETFs, 2x ETFs, calls on 2x ETFs.
 
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