When looking over the long term chart for GBN.V, something caught my attention. The sudden rise in the stock that occurred right after the December 2011 low in the new year was not unlike the sudden rise in GBN.V share prices right after the December 2008 low.

Instead of continuing on upwards, the stock continued to plunge. I mostly attributed the plunge to a strong inverse correlation with the 30-year U.S. treasury bond price, which is the most likely explanation.

But there is another wrinkle in the markets, that not only do 30-year U.S. treasury bond prices serve as an excellent hedge against declining GBN.V share prices, but also corporate bond prices may also be serving the same hedging vehicle.

In the time that LQD went parabolic, gold mining shares all suffered greatly in their valuation. So the opposite bet to a long-only strategy in GBN.V shares, which should have recovered by now, is to sell the miner without first owning any shares, and then buying LQD. Under Canadian securities law, this is allowed.

You are not required to mark a short sale if it is part of a hedged position. However, Canadian securities law is very lax, since selling a Canadian listed stock first without owning any shares and buying an American-listed ETF security might be considered securities fraud, and oversteps the intent of the law regarding hedged positions.

The banking sector which had relied on treasuries as a hedge against gold companies may now be exposed to undue risk. (the traditional method of hedging using the Black-Scholes options pricing model)

The correlation between LQD and GBN.V since the new year has declined to -0.89, when they would otherwise be postively correlated. This has also co-incided with the abolishing of the 'no down-tick rule' in Canadian securities' law.

A strong inverse correlation of -0.89 with LQD means that there is ZERO possibility that this has occured completely by chance, when GBN.V shares should actually be positively correlated, as it had prior to 2011.