Certainly, more often than not, GDX and GLD will move in the same direction, but that relationship breaks down all the time, and it breaks down very, very quickly when it does. And because GDX is made up of companies run by human beings, there are far more things at work than just the price of gold.
Which brings me to:
3) Equities Are Ultimately About Earnings
If you look at the holdings of GDX, you find, as you might expect, significant winners and losers. Detour Gold Corp., a relatively small Canadian miner, is about to turn profitable for the first time, and is up almost 100 percent on the year. That’s helping offset once-profitable Coeur Mining, which is down more than 61 percent on the year on rapidly declining revenues.
See the picture there? Gold miners, perhaps more than any small niche I can think of, are a collection of wild fortune-telling cards. That’s part of the allure of gold miners—that one might “hit it big” and all of a sudden have vastly more gold, or higher production than you might expect. Unfortunately, it cuts both ways.
4) Gold Is About Currency
The last point, which I think many folks forget, is that gold is a weak-dollar play.
Any time you trade in your dollars to hold something, you’re effectively saying, “I’m shorting the dollar to buy X.” Gold in particular lives in an odd crux between currency and commodity. But since it’s priced in dollars, you should expect that, all else being equal, a strong dollar means you can buy more gold per dollar; that is, the price of gold should go down as the dollar gets stronger.
This chart tracks the price of gold (XAU) relative to the U.S. Dollar Index (DXY):