The Gold and Silver ETF's are also partly to blame in that these Trojan Horses have siphoned off a huge amount of speculative money flows that otherwise would have found its way into the mining sector shares. Those products can be used to obtain LEVERAGED exposure to the precious metals without the risk normally associated with outright purchase of a particular mining company. That makes them attractive to hedge funds which can also use them as the long leg of a spread against a short leg in whatever company they have decided that they can target.
Paying out a dividend to shareholders might put a dent in this little game being played by the gold and silver share shorts as it currently costs them nothing to LATHER, RINSE and REPEAT this strategy. If something works for a money making trade, it will continue just as long as it keeps on working. That means they can short the shares at will since they have no opposition. Shareholders may bitch and complain about it, but as long as the status quo continues, the shares will lag the price of bullion.
The non-stop selling barrage has brought the HUI down into a critically significant technical support level near 492-490. This level must hold or if broken, must be recaptured by the close of trading Friday, to prevent a further drop lower.
At this point in time, the only thing that I can see which will lead to the shares outperforming bullion would be another round of monetary stimulus from the Fed. In such an environment, the share prices will outperform the metals initially with silver outperforming gold as well. Will we get one? I do not know but if the stock market continues to slide and the economic data numbers do not improve, I bet we will, impact on the US Dollar notwithstanding.
