Direxion Shares Exchange Traded Fund Trust is starting the new month on an uninspiring note in line with the prevailing weakness in gold prices. The ETF has been on a losing streak this week and the weakness continues today as its trades down with 1.09% losses to $72.27 before midday trading. The weakness in gold prices took a turn for the worse last week when news broke that the U.S. Federal Reserve is seriously considering raising interest rates in June.
Gold records massive monthly drop in May
Gold and ETFs tracking bullion such as the Direxion Shares Exchange Traded Fund Trust have been edging lower in the last couple of sessions. On Monday, the yellow metal crashed below the critical support level at $1,200 an ounce. The prevailing market sentiment after that is the yellow metal might fall all the way to $1,175 to $1,145 range unless the bulls have a strong fundamental reason to fight back.
The decline below $1,200 on Monday marks the first time that the yellow metal would fall below $1,200 in three months. The yellow however managed to gain $1 (less an 0.1%) on Tuesday to close the session at $1,214.90 an ounce – Tuesday’s negligible gains marks the first gain for the yellow metal in the last nine sessions. However, the closing price on Tuesday effectively means that the yellow metal ended May with 6% or $76 losses to mark the first monthly loss in 2016.policy expectations or a reversal in the dollar, the path of least resistance remains lower for gold.”
Analysts at Commerzbank also think that the yellow metal could drop all the way to $1,150 before the support holds again. The analysts noted that “the Fed was also the trigger back then when it surprised observers with a hawkish accompanying statement after its meeting at the end of October (2015), thereby preparing the market for a rate hike in December… At that time, the gold price dropped from $1,200 to $1,050 by mid-December. In other words, the gold price could still fall by around another $50.”
Bullion starts June with loses
Direxion Shares Exchange Traded Fund Trust could be stuck in a bear hug because the U.S. Dollar might soar at the expense of the yellow metal. U.S. manufacturing data released this morning showed that manufacturing activities in the U.S. grew for the third straight month in May. An improvement in the economy provides the Federal Reserve with more reasons to go ahead with the proposed rate hike in the coming months.
This morning, spot gold was down 0.4% to $1,210.16 an ounce. Nitesh Shah an analyst with ETF Securities opined that “there is increasing expectation that there will be a rate hike by July and that has weighed on sentiment… In the short term, the rate hike will be dollar positive and gold-price negative.”
Bulls might want to buy the dip because of the current weakness in bullion prices but you might want to wait until after economic data due this week has been released before you place any bets on gold.