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bobbyw24
11-10-2011, 06:05 AM
Hotshot hedge fund manager David Einhorn is bullish on gold, but physical gold is no longer his default vehicle for profitable gold exposure.

During the third quarter, Einhorn's Greenlight Capital Re (NYS: GLRE) sold physical gold holdings in order to purchase a "significant position" in the Market Vectors Gold Miners ETF (NYS: GDX) . With that deliberate shift in the structure of his gold allocation, Einhorn becomes the latest institutional investor to recognize that "a substantial disconnect has developed between the price of gold and the mining companies."

That may just be the greatest understatement of 2011! That disconnect sailed straight past the "substantial" stage earlier this year, such that in recent months the opportunity to gain coveted gold exposure at truly ludicrous valuations began to stare investors squarely in the face. I have labored to draw attention to the resulting investment opportunity, beginning with this valuation alert back in July. When Goldcorp (NYS: GG) slipped beneath $50 per share, I told my readers I thought the market was handing them a gift-wrapped treasure.

The deepest valuation disconnect in the markets today

For those suffering from a persistent case of sticker shock in response to elevated gold prices, I highlighted the miners last August as a lustrous panacea with their built-in margin of safety. As I stated then: "Because the precious-metal equities have remained remarkably disjointed from the upward momentum of metal prices for quite some time now, I believe these equities offer entry points to investors that are akin to buying gold or silver bullion at a 25% to 50% discount to prevailing spot prices." Now let's take a glance at the disconnect in visual form:

http://node_charts_production.s3.amazonaws.com/4367cbdf646edefe04f9449818868365.png

http://www.dailyfinance.com/2011/11/09/tomorrows-monster-outperformers-miners-of-gold-an/?source=TheMotleyFool