Gold Spread Redux

Yesterday we sold the $GLD -$GDX spread.  We had shorted this spread back in March.  Over the next few months the spread continued to move higher so in early June we finally decided we had enough and unwound at a loss.  About two weeks later we saw the following post:

http://www.robertsinn.com/2011/06/21/new-pairs-trade-gdxgld/

At this point we were tempted to jump back in but decided to wait until we were more confident that the spread had turned around.  We wanted to see the spread consistently decline for a couple of weeks before shorting again.  We would be giving up potential profit but we would be more certain the spread would go our way.  Yesterday The Stock Sage unwound his position for a nice gain (see link):

http://www.robertsinn.com/2011/07/07/update-gdxgld-pairs-trade/

Off course we would have liked to enter the trade at his levels but we feel this one has a long way to fall and our first concern in re-entering the trade was evidence that the spread had turned around.

More often than not, we will share our more challenging experiences with spread trades. You can use our experience for your own benefit. When we make money using statistical methods, it is a dryer experience to share with you.

Written by Norm Winer. Follow me on Twitter and StockTwits.