One of the better charts that shows the naked shorts entered the gold/silver mining sector in force around mid-2008. Anonymous, Jitney, and Penson, could probably shed some light on this activity across the sector.

Prior to the 2008 slam in gold and silver stocks, the Venture Exchange's current value was last reached in January 2006 when gold was at $520 and silver $8.50. This seems normal alright?

Regards - VHF

-

Gold, Silver and Unhedged Producers

SK Options Trading

January 19, 2011

...The HUI is The AMEX Gold BUGS Basket of Unhedged Gold Stocks Index and represents a portfolio of 14 major gold mining companies. The Index is designed to give investors significant exposure to near term movements in gold prices - by including companies that do not hedge their gold production beyond 1 1/2 years.)

The attraction of investing in stocks is that the stocks should offer leverage by as much as 3:1, 4:1 or 5:1 to the metals, otherwise investors cannot see the point in taking the many and varied risks that are inherent in the mining industry, if the returns are mediocre. The phase we are in right shows that the stocks are struggling to manage a 1:1 ratio with the metals.

The chart below compares Gold to the HUI and as we can see since 2006 the stocks have struggled to keep pace with gold and the divergence appears to getting wider.