Have Gold Miners Found Their Time to Shine?
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.
Over the past few weeks, the price of spot gold has exploded to all-time highs. As macroeconomic and geopolitical uncertainty grow, many traders and investors are looking towards gold as a type of safe haven. As a natural leveraged play on the metal, the question now is whether its strength will spill over into shares of mining company stocks.
Is Macro Driving Renewed Demand for Miners?
Compared to the spot price of gold, shares of mining stocks have lagged behind with respect to performance in recent years. Many names in the space struggled with debt burdens, high costs, and ultimately, profitability.
The rising interest rate environment forced many precious metal miners to restructure their balance sheets. The end result is that the sector has a tremendously improved cash flow situation, and now with the price of gold at record highs, there’s potential for improved revenues and margins in the sector.
In fact, the precious metal mining sector has seen a strong bid come through over the past month or so. The question now is whether this move will be able to sustain itself amidst record-high gold prices.
Traders that think there’s still more upside in the precious mining space may find a trade with Direxion’s Daily Gold Miners Index Bull 2X Shares (Ticker: NUGT), which seeks daily investment results, before fees and expenses, of 200% of the performance of the NYSE Arca Gold Miners Index*.
Below is a daily chart of NUGT as of April 11, 2024.
Source: TradingView.com
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. 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 the most recent month-end performance go to Direxion.com/etfs. For standardized performance click here.
What If Sector Earnings Fail to Produce?
If only it were as simple as higher metal prices translating to higher earnings. At the end of the day, mining stocks are running businesses, and there are costs associated with doing so. Some of the top holdings in NUGT include names like Newmont (Ticker: NEM), Barrick Gold (Ticker: GOLD), and Agnico Eagle Mines (Ticker: AEM).
To view the Fund's full holdings, click here. Holdings are subject to change and risk.
Newmont’s and Agnico Eagle Mine’s next earnings reports are April 25, while Barrick Gold’s next report is May 1. If these reports come in below estimates, then traders may look for the bearish case to pan out in the mining space. Direxion’s Daily Gold Miners Index Bear 2X Shares (Ticker: DUST), which seeks daily investment results, before fees and expenses, of -200% of the performance of the NYSE Arca Gold Miners Index, may see a bid in this case.
The good news is that higher precious metal prices can generally be construed as a tailwind for the sector. But since much of it is being driven by global uncertainties, one could also say that a reduction of tensions could be a boon for DUST to bid.
Below is a daily chart of DUST as of April 11, 2024.
Source: TradingView.com
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. 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 the most recent month-end performance go to Direxion.com/etfs. For standardized performance click here.
More Mining Opportunities
Traders seeking opportunities in more speculative segments of the mining sector may consider Direxion’s Daily Junior Gold Miners Index Bull 2X Shares (Ticker: JNUG), or the Direxion Daily Junior Gold Miners Index Bear 2X Shares (Ticker: JDST). These funds seek daily investment results, before fees and expenses, of 200%, or -200%, respectively, of the performance of the MVIS Global Junior Gold Miners Index*.
*Definitions and Index Descriptions
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 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.
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.
The MVIS Global Junior Gold Miners Index (MVGDXJTR) tracks the performance of foreign and domestic micro-, small- and mid-capitalization companies that generate, or demonstrate the potential to generate, at least 50% of their revenues from, or have at least 50% of their assets related to, gold mining and/or silver mining, hold real property or have mining projects that have the potential to produce at least 50% of the company’s revenue from gold or silver mining when developed, or primarily invest in gold or silver.
One cannot directly invest in an index.
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, Passive Investment and Index Performance Risk, and risks specific to investment in securities of gold and silver mining companies and the mining and metal industry. 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, Shorting or Inverse Risk and Daily Inverse Index Correlation Risk. Please see the summary and full prospectuses for a more complete description of these and other risks of each Fund.
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