The NYSE Arca Gold Miners Index (GDMNTR), one of the most widely followed gauges of gold mining equities, is flat over the past week, but if leveraged exchange-traded funds prove to be accurate guides, it appears traders are not waiting around for gold miners to generate more near-term upside.
What Happened
Amid flareups in trade tensions, gold recently got a lift, prompting some traders to embrace bullish leveraged mining ETFs. However, fresher data indicate almost as rapidly as traders piled into the likes of the Direxion Daily Gold Miners Index Bull 3X Shares NUGT, they are liquidating those positions.
Traders are not just leaving leveraged bullish gold miner funds like NUGT, they are heading to bearish equivalents such as the Direxion Daily Gold Miners Index Bear 3X Shares DUST, and doing so in significant fashion.
Why It's Important
The bullish NUGT, which attempts to deliver triple the daily returns of the NYSE Arca Gold Miners Index, is up 35 % this month. Alone, that would be a catalyst for traders to take profits in a leverage ETF and move onto other opportunities. However, NUGT is also bumping against resistance around $20.
Data indicate traders are not betting gold miners will flat line from here. They are wagering these stocks are poised to tumble.
For the trailing, one-, five- and 10-day periods ending Tuesday, June 11, the bearish DUST was the top asset gatherer among all leveraged Direxion ETFs. Conversely, the bullish NUGT was the issuer's worst offender in terms of assets lost over each of those periods.
For the 10 days ending June 11, traders yanked nearly $276 million from NUGT while allocating nearly $65 million to DUST, according to issuer data. That $65 million equals 41.2 % of DUST's total assets under management.
What's Next
While ETF flows are never a foolproof guide to upcoming price action, recent flows action in the aforementioned gold miners funds confirms bearish positioning. That said, the obvious risk to the long DUST trade is that gold prices continue rising, which is possible as expectations of a Federal Reserve interest rate cut increase.
A rate cut would likely weaken the dollar, benefiting dollar-denominated commodities, including gold, in the process.
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