Direxion's NUGT, DUST ETFs Shine Amid Record-Breaking Surge In Gold Prices

While artificial intelligence may dominate headlines, it’s the gold market that deserves everyone’s attention — at least that’s the argument forwarded by renowned macro investor Ray Dalio. With the world order shifting and debt assets’ risk profile rising, gold has emerged as the superior store of wealth. As such, bullion and even gold mining enterprises may be more deserving of market capital.

It’s difficult to argue with the raw numbers. On Thursday, during a session when the major indices stumbled, gold found itself up nearly 2%. What’s more, several of the top-tier tech enterprises that have captivated the imagination fell sharply. On a year-to-date basis, the price of bullion has gained over 64%, with much of that performance — almost 32% — coming within the past six months.

Fascinatingly, the Nasdaq-100 index has gained just over 35% in the trailing half-year period. That’s not far off from gold’s performance, which is a remarkable development. After all, the Nasdaq-100 features some of the top innovators in the world. These are enterprises that are pushing the boundaries of what’s possible — and hiring engineers, researchers and analysts in the process.

On the other hand, gold is, without casting aspersions, a commodity. A valuable commodity, to be sure, and one that commands intrinsic value. Still, it natively does not generate earnings nor hire workers. Under ordinary circumstances, such a dynamic may cause concern among investors.

However, with the dramatic rise in gold, the underlying gold mining complex has enjoyed a valuation upswing. In some cases, the improvement isn’t just related to the broader sentiment surge; rather, they’re witnessing notable positive shifts in operational quality.

Of course, because the acceleration in the yellow metal has been so extreme, many investors are worried about its future trajectory. Numerous fundamental and technical indicators are suggesting an overbought condition but for the equities sector. It’s possible that gold could yet rise higher as the correction impacts stocks, not the precious metal.

Then again, no asset is immune to corrective cycles. With gold nearing previously unimaginable levels, the threat of a gold bubble has kept many traders on edge.

The Direxion ETFs: Given the heated environment, traders on both sides of the aisle have ample justification for their wagers, especially within the mining segment. To that end, financial services provider Direxion offers two countervailing products.

For the optimist, the Direxion Daily Gold Miners Index Bull 2X Shares (NYSE:NUGT) tracks 200% of the performance of the MarketVector Global Gold Miners Index. Pessimists may consider the Direxion Daily Gold Miners Index Bear 2X Shares (NYSE:DUST), which tracks 200% of the inverse performance of the aforementioned benchmark.

In both cases, the primary selling point is convenience. Typically, those interested in leveraged or inverse positions must engage the options market. However, certain derivative or synthetic strategies carry complexities that may not suit all investors. In contrast, Direxion ETFs are straightforward, debit-based transactions, functioning very much like any other publicly traded security.

Still, prospective participants must familiarize themselves with the risks. For one thing, leveraged and inverse funds tend to be more volatile than standard vehicles tracking benchmark blue-chip indices. Second, Direxion ETFs can incur challenges, such as illiquidity. Finally, these funds are designed for exposure lasting no longer than one day, and going beyond the recommended period could expose unitholders to positional decay due to volatility compounding.

The NUGT ETF: On Thursday, the NUGT ETF managed to gain over 7%. So far this year, the bull fund is up over 431%.

• In the trailing 11 weeks, NUGT only incurred a down week for the five business days beginning Oct. 6, demonstrating significant bullishness.
• On a weekly basis, volume hasn’t materially risen along with the price action, thus warranting some caution.

The DUST ETF: Thursday was particularly rough for the DUST ETF, losing almost 8%. Since the beginning of January, the inverse fund is down more than 87%.

• Inverting the performance of NUGT, DUST printed 10 down weeks in the trailing 11 weeks, with distributive volume noticeably intense in the current week.
• Interestingly, accumulative volume spiked during the business week beginning Oct. 6, which may suggest rising interest in the inverse position.

Featured image by Linda Hamilton on Pixabay.