The primary goal of every investor is to maximize the potential to percentage gains while simultaneously minimizing the risk to percentage losses.  How can this be achieved? 

Technical Analysis plus Ratio Analysis 

Today, as difficult as it may be for some to believe, this 2-step analysis process done within the pm sector (physicals vs mining shares) is indicating that due to the recent extreme correction in the mining shares (using HUI as the proxy), the preference will soon shift from physicals back to mining shares.  In other words, in order to maximize gains and minimize losses going forward strictly within the pm sector, mining shares will outperform on a percentage basis the physical price of gold. 

In order for this to occur, the following price action will take place. 

Should both the price of gold and the value of the HUI continue to decline, on a percentage basis the price of gold will decline at a greater rate, 

Should both the price of gold and the value of the HUI reverse to the upside, on a percentage basis the percentage rise in the value of the HUI will be greater than the percentage rise in the price of gold. 

The other alternative market price / value action that will cause the preference to shift would be: 

If the value of the HUI rises while simultaneously the price of physical gold remains a constant or declines in price. 

Note: As of this writing the current preference still remains with physical gold, yet from a technical perspective – looking at the ratio chart (GOLD:HUI) and the technical indicators of the MACD and the RSI – extreme overbought levels are present indicating that the market preference will soon change from physical gold to the mining shares.  As such, the investor will maximize their potential percentage gains and minimize their risk to percentage losses by allocating a greater percentage of their portfolio into mining shares. 

This is known as trading the ratio and is applicable to evaluating two or more investment alternatives within any sector or across different sectors.  A very valuable trading methodology understood by few, and seldom used by the average investor to maximize gains and minimize losses.