The Direxion Shares Exchange Traded Fund Trust usually mimics the gold market and it appears that analysts are not happy about where the yellow metal is heading. The Wall Street Journal reports that gold prices opened lower on the London spot market this morning because of a drop in Chinese stocks.
It was reported that the Shanghai Composite Index crashed more by more than 8% this morning. A slump in the Chinese stock market suggests that the Chinese market is not yet out of its troubled waters. China buys almost a third of the global supply and the fears that the Chinese might be curbing their thirst for the yellow metal in the wake of a poor economy has killed bullion prices.
Last week’s gain was probably a fluke
The yellow metal had a great session last week after the news of the devaluation of the Yuan and its effect on gold prices sank in. Last Tuesday, news broke that key investors decided that a bottom is in sight for the crashing gold prices and they started buying more of the yellow metal in the second quarter.
For instance, Kevin Chen, a hedge fund manager at Three Mountain Capital told the Wall Street Journal that investors are likely to start buying the dip on the currently low prices. He says, “We believe that following the recent significant decline of gold prices, there is likely to be more upside than downside for gold.” He also mentioned the lure of gold as a safe haven when he said, “the safe-haven demand is clearly part of the reason for buyers of gold.”
The bullish investors’ view was confirmed on Thursday as the bullion rose to its highest price in six weeks last Thursday. The price of gold for December delivery rose by 2.2% to settle at $1,153.20 an ounce. The Direxion Shares Exchange Traded Fund Trust , after a rocky Monday morning, was down by more than 2 percent at time of writing.
Fresh fears about the state of the Chinese economy, effects of the weak Yuan are all good signs but some analysts think they are not good enough to signal a bottom for gold. One of the analysts holding the negative view is Mike Armbruster, principal and co-founder of Altavest Worldwide Trading wo believes that bullion prices have to show decent “upside before conclusions can be drawn on whether or not gold has put in a longer-term bottom.”
Another analyst, Naeem Aslam, chief market analyst at AvaTrade, say there is a technical resistance at $1,160 and that the yellow metal is still at the risk of a sell-off induced by traders who want to clear profits off the table. He says, “the tide has not turned for gold at all and we do not see this trend going for long unless the situation becomes completely out of control in China.”
That’s affecting the Direxion Shares Exchange Traded Fund Trust on Monday, though with markets roiling, it’s very hard to say where anything will go in the months ahead.