Gold Stocks: Ready to Shine, or More Tarnish to Come?
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.
Gold stocks haven’t exactly glittered in 2023. The NYSE Arca Gold Miners Index* was up significantly earlier this year in the wake of the Silicon Valley Bank/regional banks debacle in the spring. Unfortunately, that rally failed, leading to new lows in early October. But amid the depressed mood for the sector, could there be light at the end of the tunnel? Or is that light a train and gold stocks are about to get run over once again?
Below is a daily chart of the NYSE Arca Gold Miners Index as of November 7, 2023.
Source: Stockcharts.com as of 11/7/2023
Candlestick charts display the high and low (the stick) and the open and close price (the body) of a security for a specific period. If the body is filled, it means the close was lower than the open. If the body is empty, it means the close was higher than the open. The performance data quoted represents past performance. Past performance does not guarantee future results. One cannot directly invest in an index.
Gold vs. Gold Miner Stocks
Gold itself has been a better performer than gold miner stocks so far this year although the yellow metal hasn’t been able to break decisively above $2,000 an ounce. Gold has been able to hang in there despite a higher U.S. dollar and rising interest rates, two factors that are historical headwinds for bullion. Global geopolitical tensions and demand from central banks, meanwhile, have helped provide a floor for gold and could continue to be bullish catalysts going forward.
With miner stocks, it’s important to remember they’re different from investing directly in gold. Here are some key differences:
- Potential leveraged play on gold: When gold prices rise, profits at the mining companies can rise faster as a result of fixed production costs.
- Dividends: Gold miner stocks may pay dividends, unlike bullion.
- Company management: Investors in miner stocks may benefit from the expertise of company management when it comes to hedging, operational efficiency, and other factors that may increase the company’s value. For example, discovering a new reserve can boost a company’s prospects.
- Volatility: Gold stocks can be more volatile* that the metal itself, which boosts potential risk but may be attractive to short-term traders.
What Could Make or Break Gold Stocks?
Should traders play for gold stocks to catch-up to the price of gold, or bet on further weakness? Here are some catalysts to keep in mind:
- The Middle East Situation: Hamas’ attack in early October and Israel’s subsequent response has the potential to spiral into wider tumult across the region. Any involvement of Iran in hostilities, or the U.S. for that matter, could turbocharge the bid for gold. On the other hand, if the conflict remains contained, gold could sell off once more.
- The Greenback: So far gold has weathered a strong dollar, but if the world’s reserve currency surges anew, gold may stumble. That said, it’s not unheard of for gold and the dollar to rise in tandem. And if gold can keep rallying alongside the dollar, traders should take note.
- Energy Prices: One reason gold stocks have lagged bullion this year? Oil. Energy is a big input into gold mines, and a rising crude price dents operating margins. Gold stock bulls want to see gold rise and oil fall in the weeks and months ahead.
Bulls Have a Golden NUGT, Bears Have Gold DUST
Traders bullish on the prospects for gold stocks can seek to maximize potential positive moves with Direxion’s Daily Gold Miners Index Bull (NUGT) 2X Shares. NUGT seeks daily investment results, before fees and expenses, of 200% of the performance of the NYSE Arca Gold Miners Index, which is a commodity related equity index, consisting of a basket of gold miner related stocks. The index does not invest in physical commodities and should not be expected to directly track the price performance of gold. Gold stock bears, meanwhile, can attempt to take advantage of Direxion’s Daily Gold Miners Index Bear (DUST) 2X Shares. DUST seeks daily investment results, before fees and expenses, of 200% of the inverse (or opposite) of the performance of the NYSE Arca Gold Miners Index.
*Definitions and Index Descriptions
The NYSE Arca Gold Miners Index (GDMNTR) is a modified market capitalization weighted index comprised of publicly traded companies that operate globally in both developed and emerging markets, and are involved primarily in mining for gold and, to a lesser extent, in mining for silver. The Index will limit the weight of companies whose revenues are more significantly exposed to silver mining to less than 20% of the Index at each rebalance date. The Index may include small- and mid-capitalization companies and foreign issuers.
These funds track a commodity related equity index, consisting of a basket of gold miner or junior gold miner related stocks. They do not invest in physical commodities and should not be expected to directly track the price performance of gold.
One cannot directly invest in an index.
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.
Leveraged and Inverse ETFs pursue daily leveraged investment objectives which means they are riskier than alternatives which do not use leverage. They seek daily goals and should not be expected to track the underlying index over periods longer than one day. They are not suitable for all investors and should be utilized only by sophisticated investors who understand leverage risk and who actively manage their investments.
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, Counterparty Risk, Rebalancing Risk, Intra-Day Investment Risk, Other Investment Companies (including ETFs) Risk, Cash Transaction Risk, Tax 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 Index Bull 2X Shares, Daily Index Correlation Risk, and for the Direxion Daily Gold Miners Index Bear 2X Shares, Daily Inverse Index Correlation Risk, and risks related to Shorting. Please see the summary and full prospectuses for a more complete description of these and other risks of each Fund.
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