Gold (GLD) has been the star performer this year in the precious metals arena as it’s up about 27% on the year and appears poised to move higher. the silver etf (SLV) was briefly the star last spring before flaming out after reaching the 1980 high of roughly $50. Gold had a similar parabolic run in mid-summer but after a couple hundred dollar correction is once again moving higher. If the trend continues those holding gold ETFs or the physical should do well. However, it’s often a good strategy to invest in a related asset that has under-performed instead of going with the obvious.

In this case the two that I would be looking at are the Gold Stocks (especially Junior Gold Stocks) and platinum in the metals arena. If you take a look at the performance of the Gold ETF (GLD) versus the Gold Stock ETF (GDX) you can see that since the beginning of 2011 GDX has under-performed by more than 20%.

If you move a little further out on the risk curve you will see that the under-performance of the Junior Gold Stock ETF (GDXJ) has even been more extreme losing nearly 20% of it’s value at a time when gold has risen 27%. This is something that only occurs in a the strange situation of gold rising on a fear trade while stocks dropping due to the “Risk Off” trade.

If you look back at how GDXJ has traded since inception you will see that it has basically tracked the Double Gold ETF (DGP) over the past several years until the last 9 months. This severe divergence normally plays out as a sharp drop in gold prices or a rise in the price of gold stocks.

Gold stocks have begun to outperform gold in the past few days and this could be the beginning of a recovery. Since the juniors have been so beaten down I have decided to go with GDXJ instead of GDX. If the “risk off” mentality continues it could delay a recovery in junior gold miners but if gold remains strong their day will definitely come!