An Updated Analysis Of The Arbitrage Betwixt Golden Together With Gold-Miners

In my article nearly the arbitrage chance betwixt golden together with gold-miners, I cautioned that nosotros should direct keep the analysis amongst a grain of common salt because of the brusque history of GDX (a gold-miners ETF). Adam Phillips of Van Eck Global, the occupation solid which created GDX, has kindly pointed out to me that GDX is designed to rail the Amex Gold Miners Index, GDM, which has a much longer history. Hence I repeated the analysis amongst golden location prices vs. GDM for the final three years. The results confirm my before analysis amongst much higher statistical significance: GDM cointegrates amongst golden prices amongst over 99% probability. Here I plot the departure betwixt the location prices of 6.1 troy ounce of golden together with the GDM index multiplied yesteryear 3.68 (to compare amongst my before plot, I normalize the golden prices together with the GDM index together with then that the Gold-GDM spread yields around the same dollar value equally the GLD-GDX spread at whatever time):

The mean-reversion of this spread is fifty-fifty to a greater extent than obvious than my plot inwards the before article. Also, amongst the longer history, nosotros acquire a much improve experience for the gain of fluctuations. While the value of the spread is nearly -$213 equally of the unopen of November 9, it tin give the axe for certain acquire much lower before reverting, based on the highs together with lows of the final three years.


FOOTNOTE

A reader of my before article made an interesting comment nearly shorting ETF’s such equally GDX together with GLD. He argued that since ETF shares tin give the axe hold upwards constantly created, it should non require existing shares to hold upwards borrowed for shorting. I asked Mr. Phillips of Van Eck Global nearly this, together with he confirmed to me that a newer ETF similar GDX tin give the axe inwards fact hold upwards difficult to borrow. He went on to nation that the borrowing of ETF’s has nix to practice amongst the issuer. The issuer tin give the axe indeed practice an unlimited furnish of the shares, precisely the trader however demand to borrow them from his or her broker for shorting. He besides told me he is currently working difficult to eliminate whatever borrowing problems inwards GDX that may direct keep existed.