Gold ETFs Betray Safe-Haven Reputation In March Market Meltdown

March 19, 2020 7:26 am
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Gold ETFs Betray Safe-Haven Reputation In March Market Meltdown

At a time when investors are desperate for safe-haven assets, gold and the related exchange traded funds aren't providing the expected shelter from the storm. This month, the SPDR Gold Shares (NYSE:GLD), which had been on a torrid pace entering March, is lower by 5.7%.

Gold miners ETFs have been much, much worse. On Wednesday alone, the VanEck Vectors Gold Miners ETF (NYSE:GDX) plunged nearly 23%, bringing its month-to-date loss to 32.67%. That after gold notched its biggest one-day rally since 2016 on Tuesday.

From a technical standpoint, it appears bears control the gold future market right now.

“Technically, April gold futures bears have the firm overall near-term technical advantage,” reports Kitco News. “Gold bulls' next upside near-term price breakout objective is to produce a close above solid technical resistance at $1,600.00. Bears' next near-term downside price breakout objective is pushing prices below solid technical support at this week’s low of $1,450.90.”

See Also: Trump Signs Coronavirus Relief Bill, ECB Injects $821B In Liquidity, Japan Considers Cash Payouts

Bearish Betrayal…Or Not

Proving that leveraged ETFs, particularly those involving gold miners, must be treated as short-term instruments, all four of the bellwether geared funds focusing on this segment are in red this month. Yes, even in the inverse products.

Take the case of Direxion Daily Gold Miners Index Bear 3X Shares (NYSE:DUST). DUST attempts to deliver triple the daily inverse returns of the NYSE Arca Gold Miners Index. Even amid a rough stretch for gold and the miners, DUST was scuffling this month. Until Wednesday when DUST surged 31.79% on more than double the average daily volume.

A similar situation is scene with DUST's small-cap counterpart – the Direxion Daily Junior Gold Miners Index Bear 3X Shares (NYSE:JDST) – is lower by more than 60% over the past week and that's with the benefit of a Wednesday gain of almost 22%.

The Bull Case

Timing reentry into the Direxion Daily Gold Miners Index Bull 3X Shares (NYSE:NUGT), the bullish equivalent of the aforementioned DUST, is historically tricky and that task is even more so following NUGT's Wednesday slide of 49.34%, but some market observers believe there are still tailwinds for the miners.

“The fiscal and monetary measures currently being taken rival those seen during the housing crisis of 2008/2009, a time when owning gold and miners was extremely lucrative,”according to Schaeffer's Investment Research. “Higher government spending and stimulus generally equates to higher prices in metals, and conversely a lower U.S. Dollar. Should this trend continue, further quantitative easing and government stimulus should push prices in these sectors even higher.”

Assuming those good vibes for miners materialize, ambitious traders could look to the Direxion Daily Junior Gold Miners Index Bull 3X Shares (NYSE:JNUG), which is coming off a Wednesday loss of almost 61%, which pushed its March decline to over 90%.

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