Gold miners: danger signals

19 Jul 2016

Gold is up 26% in 2016. Shares of gold mining companies have more than doubled (average +121% in industry) for the period under review. In good times, the shares of gold miners tend to grow faster than other securities.In bad times for the industry, however,theyfall significantly harder than other sectors of the economy. This month, investors bought a huge number of puts and options that allow selling the sharesof gold miners at a fixed price - such a fuss hints on the expected drawdown in the industry.Investors are trying to secure their gains in anticipation of possible sales. Cautious pessimism persists even under conditions where gold is rising. The main factor in the growth of the metal is wholesale monetary easing.Barron's experts believe that the defensive posturingof traders reflects the fact that all trades eventually stall, or run out of new money needed to keep pushing prices higher.