As Gold Soars, This 2X Leveraged Fund Is Climbing In Tandem: What To Watch

Zinger Key Points
  • NUGT is a double-leveraged fund that is designed to outperform the NYSE Arca Gold Miners Index by 200%.
  • The ETF has been trading in an uptrend, making a series of higher highs and higher lows.

Direxion Daily Gold Miners Index Bull 2X Shares GOLD closed 2.85% higher on Friday, in tandem with the price of spot gold, which has surged about 5% since Jan. 6.

Gold has been trading in a sharp uptrend since Nov. 4, and on Jan. 4, the commodity regained the 200-day simple moving average (SMA) as support, indicating a new bull run could be on the horizon.

NUGT has increased over 9% since Jan. 6, which Benzinga noted was likely to occur on Dec. 22.

Traders who believe the price of gold miner stocks is headed higher still may choose to play the upward trajectory through the Direxion ETF.

NUGT is a double-leveraged fund that is designed to outperform the NYSE Arca Gold Miners Index by 200%. The ETF tracks several gold and silver mining companies, with Newmont Corp NEM, Barrick Gold Corp GOLD and Franco-Nevada Corp FNV making up 32.42% of its holdings.

It should be noted that leveraged ETFs are meant to be used as a trading vehicle as opposed to a long-term investment by experienced traders. Leveraged ETFs should never be used by an investor with a buy-and-hold strategy or those who have low risk appetites.

For traders wanting to play the gold mining index bearishly, Direxion offers Direxion Daily Gold Miners Index Bear 2X Shares DUST.

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The NUGT Chart: NUGT has been trading in a fairly consistent uptrend since Nov. 3, when the ETF reversed course off the $21.70 mark. The most recent higher low was formed on Jan. 5 at $37.65 and the most recent confirmed higher high was printed at the $40.31 mark the day prior.

  • On Friday, NUGT closed the trading session near its high-of-day price, which caused the ETF to print a bullish Marubozu candlestick. The candlestick indicates higher prices may come on Tuesday, but an eventual pullback is likely on the horizon.
  • A retracement is likely in the cards because NUGT’s relative strength index (RSI) is measuring in at abut 71%. When a stock’s or ETF’s RSI reaches or exceeds the 70% level, it becomes overbought, which can be a sell signal for technical traders. It should be noted that gold’s RSI is also in overbought territory.
  • NUGT has resistance above at $50 and $54.75 and support below at $44.32 and $41.31.

Photo via Shutterstock.

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