Geopolitical Whiplash Boosts Profile Of Direxion's Gold-Focused NUGT, DUST ETFs

After a tense showdown following President Donald Trump's decision to use U.S. forces to bomb key Iranian nuclear sites, another twist in the geopolitical narrative shines the spotlight on gold. When Israel initially launched an attack against Iran, the precious metals market soared as investors sought a reliable safe haven. However, a U.S.-brokered ceasefire between the two warring nations sapped momentum, sending gold and the associated mining complex lower.

Still, investors banking on the cynical angle might not have to wait indefinitely. Although Trump earlier announced the ceasefire on Truth Social, claiming that both sides had agreed to phase out hostilities, the matter wasn't so simple. For instance, Israel's defense minister accused Iran of violating terms following the detection of missile launches from Iranian territory. As analysts noted, the ceasefire – while encouraging – is fragile.

It’s important to note that the region supplies nearly one-third of the world's oil. As such, renewed tensions could easily cause both geopolitical and economic disruptions. Under this scenario, precious metal prices may rise, which could lift gold miners.

Moreover, even leaving aside the Israel-Iran conflict, gold has been one of the strongest asset classes. Prior to the hostilities, the metal soared to record highs in April, a beneficiary of strong inflows into gold-focused exchange-traded funds. Plus, central banks have been getting in on the action, stockpiling gold amid broader economic and monetary concerns.

Still, not every factor is positive for gold. On the immediate front, if the ceasefire holds and leads to more sustained stability in the Middle East, this dynamic would dampen the metal's risk premium. Potentially, corrective forces could drop the price to prior technical support levels.

On another important note, Federal Reserve Chair Jerome Powell has been reluctant to ease monetary policy, choosing instead to adopt a wait-and-see mode. Recently, the Fed chair has been under increasing pressure from the Trump administration to reduce the benchmark interest rate.

The Direxion ETFs: With the safe-haven asset seemingly at a crossroads, traders interested in playing the short-term game may consider Direxion's gold-mining-focused ETFs. For the optimists, the Direxion Daily Gold Miners Index Bull 2X Shares NUGT seeks the daily investment results of 200% of the NYSE Arca Gold Miners Index. On the flipside, the Direxion Daily Gold Miners Index Bear 2X Shares DUST seeks 200% of the inverse performance.

Primarily, the Direxion ETFs offer a convenient mechanism for speculation. Ordinarily, those interested in leverage or short positions must engage the options market. However, derivative financial instruments may carry unique complexities that may not suit every investor. In contrast, Direxion ETFs can be bought and sold like any other publicly traded security, thereby mitigating the learning curve.

Still, prospective participants must be aware of the risks that these financial vehicles present. First, leveraged and inverse funds tend to be far more volatile than standard ETFs that track benchmark indices. Second, Direxion ETFs are designed for exposure lasting no longer than one day. Holding beyond the recommended period may lead to value decay due to the daily compounding effect.

The NUGT ETF: While the NUGT ETF has struggled in recent sessions, overall, it has been an outstanding performer, gaining nearly 111% since the start of the year.

The latest volatility in the NUGT ETF has dropped the price action just below the 20-day exponential moving average but above the 50 DMA.
Since late December to early January, NUGT has generally charted a series of higher highs and higher lows. Unless NUGT falls materially below the 50 DMA, it may not be time to panic.

The DUST ETF: On the other end of the scale, the DUST ETF has been a strong performer recently but has lost nearly 64% on a year-to-date basis.

Problematically, the DUST ETF's price action has been consistently stymied by the 50 DMA, which has acted as resistance.
What's interesting is that Tuesday's price action has been met with strong volume. If the bears can build support, the inverse fund may target the 50 DMA, which stands at $27.37.