The Xchange Blog

Gold Miners Oversold or Turning to DUST?

On the last trading day of June, the price of gold fell to $1,180.50/oz. − a 34-month low. The ripple effect continues from the June 19th statement by Chairman Ben S. Bernanke that the Federal Reserve may soon ratchet down debt buying, as large speculators now hold a near-record number of short contracts on gold, according to data from the Commodity Futures Trading Commission (CFTC).

According to Bloomberg, the slump is forcing investors to reduce the valuation of miner stocks, which have spent $195 billion on mergers and acquisitions in the decade-long boom. Newcrest Mining Ltd. said last month it may write off as much as $5.5 billion, probably the biggest one-time charge in gold mining history, Ernst & Young LLP said last month.

Barrick Gold Corp. the largest gold producer, announced June 28th, it may also take a loss of as much as $5.5 billion on the value of mines in the Andes and is likely to announce additional charges. Barrick now trades at 5.1 times future earnings, a fall from 18.9 three years ago, according to Bloomberg data.

Gold Miners Cumulative Returns (6/3/2013 – 6/28/2013)

 

Source: Bloomberg. Past performance is not indicative of future results. NUGT and DUST benefited from positive compounding for the month of April due to the downward trend of the index return. It’s important to monitor your trades daily, to make sure your exposure is in line with your objectives.

Still, some are calling for a bottom on gold prices, and that miners are oversold. History shows that investor behavior repeats itself, and we all know the saying that at the tops, everyone is bullish, and at the bottoms, everyone is bearish. Either way, monitor your positions and remember that there are two sides to the trade.

Either way, think direction. Trade.

 

Fund Performance (as of 3/31/2013)

 

The performance data quoted represents past performance; past performance does not guarantee future results; the investment return and principal value of an investment will fluctuate; an investor’s shares, when redeemed, may be worth more or less than their original cost; current performance may be lower or higher than the performance quoted. Returns for performance under one year are cumulative, not annualized. For the most recent month end performance, please click here.

ETFs are not suitable for all investors and should be utilized only by sophisticated investors who understand leverage risk, consequences of seeking daily leveraged investment results and intend to actively monitor and manage their investments. Due to the daily nature of the leverage employed, there is no guarantee of amplified long-term returns. Past performance is not indicative of future results.

Rafferty has contractually agreed to waive all or a portion of it’s fees and/or reimburse the fund for expenses through March 1, 2014, to the extent that the funds net annual operating expenses exceed 0.95%.

Shares of Direxion Shares are bought and sold at market price (not NAV) and are not individually redeemed from the Fund. Brokerage commissions will reduce returns. Market Price returns are based upon the midpoint of the bid/ask spread at 4:00 PM Eastern time (when NAV is normally determined), and do not represent the returns you would receive if you traded shares at other times. Fund returns assume that dividends and capital gains distributions have been reinvested in the Fund at NAV. Some performance results reflect expense subsidies and waivers in effect during certain periods shown. Absent these waivers, results would have been less favorable.

NYSE Arca Gold Miners Index – The index is comprised of publicly traded companies that operate globally in both developed and emerging markets, and are involved primarily in the mining for gold and silver. The companies included in the index have an average market capitalization of more than $6.27 million dollars and a median market capitalization of $2.79 million dollars as of March 31, 2013. One cannot directly invest in an index.