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Bank of England Makes Surprise Move to Weaken Gold: Direxion Shares Exchange Traded Fund Trust (NUGT)

Direxion Shares Exchange Traded Fund Trust (NUGT) Gold

Gold prices were down today to continue the downward trend that was triggered in the Direxion Shares Exchange Traded Fund Trust on Thursday. On Thursday, the bullion recorded its fifth loss in six sessions in a sharp contrast to the gains it had been recording in the last two weeks. The bullion ended Thursday’s session with a 0.9% loss to settle at $1,332.20 an ounce. The bullion had earlier returned to bullish ways on Wednesday after it has recorded four straight session of losses.

Direxion Shares Exchange Traded Fund Trust (NUGT) Gold

The bullion was down yesterday after global equities recorded a surge in bullish action. For instance, the S&P 500 gained 0.53%, the Dow Jones gained 0.73%, and NASDAQ was up 0.57%. Stocks were also up in Asia with Shanghai gaining 0.01% and Nikkei 225 gaining 0.68%. However, equities are down in Europe this morning with UK’s FTSE 100 down 0.22% and Euro STOXX 50 down 0.29%.

Bank of England makes surprise move to weaken gold.

One of the reasons behind the gains in equities and the weakness in the yellow metal is the surprising decision of the bank of England not to cut its benchmark interest rates. The bank left its interest rate untouched at 0.5% and it didn’t make any changes to its 375B-pound asset purchase program. Analysts had mostly expected England to cut its interest rates after the Brexit vote in order to provide stimulus to the economy.

In fact, the Governor of the Bank of England dropped some hints last week about how the bank is planning to introduce stimulus packages. The bullion has been soaring after the Brexit vote in part because of the uncertainties of a post-Brexit era and because of hints that central banks around the world will introduce stimulus packages.

Chintan Karnani, chief market analyst at Insignia Consultants observes that “investor perception that U.K. economy will be less affected by [Brexit] resulted in fall of gold and silver… Technicals also came into play as gold fell below $1,336.”

The Direxion Shares Exchange Traded Fund Trust closed down with at $160.09 with a loss of 1.76% on Thursday after the bullion failed to regain its bullish momentum. On Thursday, the ETF hit a session low of $146.23 and it appears that the decline will increase today because it has already lost 1.71% to $157.35 in pre-market trading.

Why is the bullish rally in gold slowing down

Gold and the Direxion Shares Exchange Traded Fund Trust might be on track to end the week with losses to mark its first weekly loss since May. This morning, the bullion was edging lower with a 0.2% decline to $1,332.70 an ounce as at 0730GMT. The bullion is down 2.5% this week and it seems that the weekly loss is a done deal.

Brian Lan, managing director at Singapore-based gold dealer observes that “the precious metals are taking a breather. They have done really well this year and went up too quickly. So retrenchment is only right to happen. Also, stock markets are doing well at this point of time.”

HSBC analyst James Steel also observes that the bullion might lose some of its shine to pullback, profit-taking selloff, and reduced demand. In his words, “Gold prices seem vulnerable to the downside as the financial markets look more confident. The path of least resistance appears lower, for now. The net long spec positions are historically high and may need to be pared back before gold can advance.”

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Victor Alagbe is a seasoned business and finance writer with a specialty in writing about how to invest for the long-term in healthcare, pharmacology, energy and tech stocks. His long-term focus is on stocks that provide a nice mix of growth and income. For the short term, he passionately writes about trading stock options for the excitement and leverage that stock options offer.