While tech and tariffs may represent the most influential drivers in the market this year, the precious metals complex has benefited from an unusually bullish backdrop. Along with general fears tied to economic stability, inflation has been at the forefront of investors' minds. Subsequently, the safe-haven status of gold sent prices soaring — though the narrative may be shifting.
Earlier, the erosion of dollar strength inspired market participants to seek the relative protection of gold. As a commodity commanding intrinsic value, the trimming of the greenback's purchasing power tends to raise the price of gold and other precious metals. Furthermore, the Federal Reserve moved to reduce its benchmark interest rate, first to a range of 4% to 4.25% and more recently to 3.75% to 4%.
Moreover, the central bank announced a halt to the runoff of its security holdings starting in December, which effectively marks the end of the quantitative tightening program that began in mid-2022. Notably, the Fed's balance sheet once neared $9 trillion at its peak. Since then, the metric has declined to $6.59 trillion.
While the dovish pivot in monetary policy helped contribute to the blistering rise in gold prices, it's possible that excessive speculation may have triggered near-term profit-taking. Furthermore, uncertainties over the Trump administration's tariffs — along with the ongoing government shutdown — appear to have taken the wind out of the resource sector's sails. For example, since Oct. 20, the Gold Continuous Contract price has dipped more than 8%.
Still, what's interesting is that many of the optimists remain unfazed. For example, JPMorgan recently forecasted that the yellow metal would average $5,055 per ounce by the fourth quarter of 2026. Fundamentally, the bank sees sustained investor interest and central bank buying as major upside catalysts.
Perhaps most conspicuously, some gold experts — including market strategist Otavio Costa of Crescat Capital — firmly believe that the asset is not in a bubble. In particular, experts are pointing to the gold mining sector as being comparatively undervalued, especially when stacking junior explorers with established enterprises.
The Direxion ETFs: Thanks to the shifting tides in the precious metals space, there's ample opportunity for speculators to place wagers on both sides of the sentiment aisle. To that end, financial services provider Direxion offers two countervailing products.
For the optimists, the Direxion Daily Gold Miners Index Bull 2X Shares (NYSE:NUGT) seek the daily investment results of 200% of the performance of the MarketVector Global Gold Miners Index. On the other hand, the Direxion Daily Gold Miners Index Bear 2X Shares (NYSE:DUST) seek 200% of the inverse performance of the aforementioned index.
Primarily, the purpose of the NUGT and DUST ETFs is to deliver a convenient mechanism for speculation. Typically, those who seek leveraged or inverse positions must engage the options market, which may require complex tactics that might not align with every investor's interests. With Direxion ETFs, the underlying transactions are straightforward, debit-based trades, thereby mitigating the learning curve.
Still, prospective participants should be aware of the unique risks that these specialized products pose. First, leveraged and inverse funds tend to be more volatile than standard vehicles tracking benchmark indices like the S&P 500. Second, Direxion ETFs should not be held for periods lasting longer than one day. Structurally, the reason centers on the compounding of volatility, which can lead to positional erosion.
The NUGT ETF: Since the start of the year, the NUGT ETF has gained 262%. In the past six months, the bull fund has gained 74%.
- While momentum is strong overall, it's worth pointing out that the recent volatility in gold has hurt NUGT disproportionately, which is down 22% in the trailing month.
- What's particularly concerning right now is that NUGT's price action has slipped below the 50-day moving average. As such, a quick recovery is needed to avoid further technical damage.
The DUST ETF: From the January opener, the DUST ETF has slipped almost 83%. In the trailing half-year period, it's down about 57%.
- In contrast to the bull fund, DUST has enjoyed a recent resurgence, with the inverse trade gaining nearly 15% in the trailing month.
- While the overall technical picture is ugly, the leveraged bear fund has recently managed to rise above the 20-day exponential moving average.
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