Playing The Gold / Gold Miner Valuation Differential Trade (GDX, GLD)

As most assets have been trending down over the past week or so, the commodity asset class has been hit particularly hard. But within this sector the miners have been absolutely demolished. Some analysts recently have been seeing gold miners shares trade at very high premiums to the metal itself and thought a correction might be in order. It seems they were right.

Since October 13th the Market Vectors Gold Miners ETF (NYSE: GDX) is down 15%, while gold itself (measured by SPDR Gold Shares ETF (NYSE: GLD)) is down 3.5%, and the S&P 500 is down 3%.

One can play the premium/discount between the metal and the miners, by shorting one ETF and going long the other. If you had the short miner/long metal trade on, you would have netted 11.5% on the premium reversion during this period.