Editor’s note: Any and all references to time frames longer than one trading day are for purposes of market context only, and not recommendations of any holding time frame. Daily rebalancing ETFs are not meant to be held unmonitored for long periods. If you don't have the resources, time or inclination to constantly monitor and manage your positions, leveraged and inverse ETFs are not for you.
For the past few months, many headlines and talking points have been dominated by the presence of cryptocurrency’s massive bull and bear runs across coins and exchanges. With the latest volatility in cryptocurrency values additionally heating things up, a large number of eyes are locked onto the crypto market. However, with the signs of inflation in the United States, along with the Chinese ban on financial institutions and payment companies from providing services related to cryptocurrency transactions, traders might be looking again to the classic store of value — gold. Gold has been a hedge against inflation for a long time due to its standing as a long-term store of real value. It might be in a good position to be even more valuable if China and other countries take a hard-lined stance against cryptocurrencies.
The Bull Side
The price of gold per ounce has been climbing back up in the past several months, due to a variety of factors including COVID-19, central banking activities, and increased demand. Starting in early April, gold per ounce rose from its 2020 tumble and has continued the positive trend. Looking ahead, bulls may be looking for key economic and governmental indicators that could point to a continued upward trend for gold, which can include inflation and low Treasury bond yields. If inflation increases and the United States Federal Reserve does not react, the value of gold compared to the dollar should go up.
The Bear Side
On the other hand, employment numbers and the overall economic outlook for the United States and other countries around the globe appears to be getting better. Combining this with the possibility of central banks cutting down on inflation could lower the price of gold moving forward. Additionally, the price of gold has not gone up as much as some other commodities, which could point to less investment enthusiasm in the short term.
Leverage your Miners Trade, at your Own Risk.
An example for an approach other than simply trading gold as a commodity could be trading the stock of gold and other precious metal mining companies. In a similar vein to trading oil companies based on the price of oil, mining companies’ stock values often will fluctuate and move in trends based on the underlying price of gold and other valuable precious metals. Additionally, while mining companies’ value will often trend upward when gold moves up, these are companies that when run well may still able to generate continual value in a lower-priced gold market.
One option that traders can use are leveraged mining exchange-traded funds (ETFs) like the Direxion Daily Gold Miners Index Bull 2X Shares (NUGT) to the Daily Gold Miners Index Bear 2X Shares (DUST), which double the amount of daily exposure to miners. With a mining-focused leveraged ETF, traders can speculate on the performance of the NYSE Arca Gold Miners Index with 2 times the performance (positive or negative). These daily leveraged ETFs are meant for experienced traders with short-term goals. You can also learn more about leveraged ETFs like these here.
Over the past three months, Direxion Daily Gold Miners Index Bull 2X Shares (NUGT) has gained almost 30%, as its bear equivalent, DUST, has lost almost 30% through the same period.
Cumulative Returns. Source: Bloomberg. Data represents past performance and 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. For standardized and month-end click here.
With gold prices reaching back to higher levels over the past few months, more optimism from bulls and skepticism from bears has been seen, and traders may want to look into various methods of capitalizing on the gold sector. Heading into the summer, concerns about inflation, cryptocurrencies and global governments might continue to bring more uncertainty and opportunity into the market.
Investing in a Direxion Shares ETF may be more volatile than investing in broadly diversified funds. The use of leverage by a Fund increases the risk to the Fund. The Direxion Shares ETFs are not suitable for all investors and should be utilized only by sophisticated investors who understand leverage risk, consequences of seeking daily leveraged, or daily inverse leveraged, investment results and intend to actively monitor and manage their investment.
Short-term performance, in particular, is not a good indication of the fund’s future performance, and an investment should not be made based solely on returns. Because of ongoing market volatility, fund performance may be subject to substantial short-term changes. For additional information, see the fund’s prospectus.
An investor should carefully consider a Fund’s investment objective, risks, charges, and expenses before investing. A Fund’s prospectus and summary prospectus contain this and other information about the Direxion Shares. To obtain a Fund’s prospectus and summary prospectus call 866-476-7523 or visit our website at www.direxion.com. A Fund’s prospectus and summary prospectus should be read carefully before investing.
CUSIP Identifiers have been provided by CUSIP Global Services, managed on behalf of the American Bankers Association by Standard and Poor’s Financial Services, LLC, and are not for use or dissemination in any manner that would serve as a substitute for a CUSIP service. The CUSIP Database, ©2011 American Bankers Association. “CUSIP” is a registered trademark of the American Bankers Association.
Shares of the Direxion Shares are bought and sold at market price (not NAV) and are not individually redeemed from a Fund. Market Price returns are based upon the midpoint of the bid/ask spread at 4:00 pm EST (when NAV is normally calculated) and do not represent the returns you would receive if you traded shares at other times. Brokerage commissions will reduce returns. Fund returns assume that dividends and capital gains distributions have been reinvested in the Fund at NAV. Some performance results reflect expense reimbursements or recoupments and fee waivers in effect during certain periods shown. Absent these reimbursements or recoupments and fee waivers, results would have been less favorable.
Direxion Shares Risks – An investment in each Fund involves risk, including the possible loss of principal. Each Fund is non-diversified and includes risks associated with the Funds’ concentrating their investments in a particular industry, sector, or geographic region which can result in increased volatility. The use of derivatives such as futures contracts and swaps are subject to market risks that may cause their price to fluctuate over time. Risks of each Fund include Effects of Compounding and Market Volatility Risk, Leverage Risk, Market Risk, Market Disruption Risk, Aggressive Investment Techniques Risk, Counterparty Risk, Intra-Day Investment Risk, and risks specific to investment in securities of Gold and Silver Mining Companies and the Mining and Metal Industry, including Emerging Markets Risk, and Canadian Securities Risk. Because the Funds’ Index is concentrated in the gold mining industry and may have significant exposure to assets in the silver mining industry, the Funds will be sensitive to changes in the overall condition of gold- and silver-related companies. Competitive pressures may have a significant effect on the financial condition of gold- and silver-related companies. In addition, for the Direxion Daily Gold Miners Bull 2X Shares, Daily Index Correlation/Tracking Risk and Other Investment Companies (including ETFs) Risk, and for the Direxion Daily Gold Miners Bear 2X Shares, Daily Inverse Index Correlation/Tracking Risk, and risks related to Shorting and Cash Transactions. Please see the summary and full prospectuses for a more complete description of these and other risks of each Fund.
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