Gold Miners Seen in a New Light

Friday, 17 May 2013 | 6:06 PM ET
How Gold's Plunge Pressures Miners: CIO
Friday, 17 May 2013 | 5:06 PM ET
The slide in gold prices pushes the gold miners ETF GDX to its lowest point since December 2008, but here's the warning level for investors, Strategic Financial Group CIO Lincoln Ellis says.

The gold miners exchange-traded fund GDX has plummeted to its lowest point since December 2008 as the precious metal has lost ground, putting it in a new light, Strategic Financial Group CIO Lincoln Ellis said Friday.

"The bloom is definitely off the rose in the gold market, and the gold miners are feeling it, too," he said, adding that the pain trade in gold "has been twice the pain" for miners.

The Market Vectors Gold Miners ETF, as the GDX is called, closed down 4 percent at $26.38.

On CNBC's "Fast Money," Ellis said that GDX is breaking from the price action in gold to the tune of a 20 percent deviation this year.

"And things are starting to look cheap," he added.

The gold mining sector could start to see consolidation or supply restrictions, Ellis said.

Spot gold declined 1.6 percent, hovering at a four-week low below $1,364 an ounce, Reuters reported. U.S. gold futures for June delivery dipped 1.6 percent at $1,364.70.

"If the dollar continues to strengthen, gold will continue to come down, those margins'll compressed and the valuations will continue to look reasonable, or in some cases slightly cheap," Ellis said. "Hopefully, you get consolidation in the bottom part of that index. That would also be helpful to the top-tier players."

Ellis added that gold has fallen out of favor as a safety trade.

"Everybody who's wanted to be long gold has been long gold, and that trade is over," he said. "Those people are exiting that trade."

Now, he argued, the story was more about fundamentals in such emerging economies as India and China.

"Moving away from gold as the driver but looking more to the fundamentals of what's going on in the mining business, a broader commodity issue, may be a reason to take a second look at them," Ellis said.

Trader disclosure: On May 17, 2013, the following stocks and commodities mentioned or intended to be mentioned on CNBC's "Fast Money" were owned by the "Fast Money" traders: Brian Kelly is long TLT; Brian Kelly is long TREASURIES; Brian Kelly is long COPPER; Brian Kelly is long DOLLAR; Brian Kelly is short GOLD; Brian Kelly is short SILVER; Tim Seymour is long AAPL; Tim Seymour is long BAC; Tim Seymour is long WMT; Tim Seymour is long SBUX; Tim Seymour is long WLT; Tim Seymour is long TSL; Guy Adami is long C; Guy Adami is long GS; Guy Adami is long INTC; Guy Adami is long AGU; Guy Adami is long MSFT; Guy Adami is long NUE; Guy Adami is long BTU; Josh Brown is long AAPL; Josh Brown is long XLU.

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