I think it would not be right to grade skip the older one because it does not sound like she would thrive with the grade skip. I don't mean to be harsh- but I think that the older child already knows that the younger is the smarter of the two. The question is, will the older do well in spite of not being as gifted? I think that if the older is not grade skipped and gets excellent grades, she will have positive self-esteem. I think that doing everything you can to ensure that the older achieves the same level of success at their ability level is more important than trying to get the older to achieve success on the same playing field as the youngest.
BTW- this happened in my class growing up. The oldest child was more gifted than the youngest. I think they decided to grade skip the youngest based upon the achievements of the oldest. It did not work very well and the youngest was placed in either the average track or slightly above average track. If she had not been advanced by a year I think she would have been placed in the more advanced track at her grade level and been at the top of her class. My d is at the top of her class and quite proud of it- she gets a lot of satisfaction of seeing her work and intelligence pay off. Her peers look up to her. I think this could be true of your older daughter as well. Please consider that this is not just a family matter (sibling rivalry?) and that the older should be given every opportunity to excel with her peers.
