Direxion Shares Exchange Traded Fund Trust (NYSEARCA:NUGT) was set to open higher on Thursday as the market attempts to price in the intentions of Federal Reserve chair Janer Yellen. Yellen, who appeared in front of Congress to discuss the central bank’s policy on Wednesday, is the main player in what is turning into a very dramatic game in the gold market.
Right now the central bank appears to be moving toward rate normalization. That’s despite the flimsy recovery that the US has seen over the last decade and the relatively weak inflation numbers. For investors with money in the
Fed rate hike hits gold
What everybody wants to know is whether or not the Federal Reserve is going to end up raising interest rates another time before the end of the year. When the central bank raises rates, it is popularly believed, traders leave the gold market.
This story makes sense intuitively. But, as any experienced trader will know, and intuitive story is the perfect tool for somebody selling an overpriced instrument.
In reality we don’t really know what the relationship between rate hikes and gold is. In the short term, however, there’s likely to be a good amount of volatility in the face of a Federal Reserve rate hike.
While the impact of the rate hike remains unknown, gold pulls have another idea up their sleeves. President Donald Trump is good for gold, say some traders, whether or not he is successful. In the event that the Russian scandal continues to get worse, goes the theory, traders will buy the metal looking for safety.
On the other hand if President Trump is able to carry through with his massive promised stimulus, which would be a mix of tax cuts and infrastructure spending, bulls reckon that inflation will spike. In that case gold will look good to guard portfolios against that kind of price erosion.
There is always the chance of course that Donald Trump, like most presidents, remains restrained in his ambitious policy agenda but doesn’t fail completely out of the White House. It’s not clear exactly what the gold bulls believe would happen to the price of the yellow metal in that case.
Looking for gains in the Direxion Shares Exchange Traded Fund Trust (NYSEARCA:NUGT)
On Thursday’s morning’s pre-market, shares in the Direxion Shares Exchange Traded Fund Trust (NYSEARCA:NUGT) was were up by 1.5 percent. That won’t be really celebrated by people who have been betting on gold for the last few weeks and months.
Since the start of the year the ETF, which tracks gold price, has fallen by more than 6 percent. In that period it has gone through its highs and lows, but the general trend in recent years has been distinctly downward.
With the Fed possibly about to change the game once more, and perhaps introduce a new more creative kind of policy. At least some traders reckon that the gold price is going to fly upward.
Were that to happen it would bring the value of the Direxion Shares Exchange Traded Fund Trust (NYSEARCA:NUGT) right along with it.
Trading on gold prices is still a very risky game, however, and one that all but the most experienced should probably avoid major exposure to.