Direxion Shares Exchange Traded Fund Trust (NYSEARCA:NUGT) dropped 1.64% to trade at $3.00 straight out of the gate at 9:44AM EDT. The poor start in the ETF in today’s session doesn’t surprise because gold is having a bad day of its own. Gold prices are edging lower as a stronger dollar erases the prior positive views that have given the yellow metal an uptrend in recent days.
Yesterday, gold prices saw a 0.6% rise to close at $1,139.80 on the New York Comex, to make the best closing price since August 24. However, it is doubtful that those gains will live to see the light of day in today’s session as the bullion opens lower. The Wall Street Journal reports that spot gold was down 0.04% at $1,139.31 a troy ounce in European trade this morning. The bullion has had an intraday high of $1,142.46 and a low of $1,135.68 in today’s session.
Strong dollar mounts pressure on gold
The U.S. dollar has been strengthening against a basket of currencies such as the Sterling and Yuan after China devalued the Yuan. Gold is sold in dollars and the strong dollar makes gold somewhat pricey for people who hold other currencies that are weak against the dollar. William Adams, head of research at Fastmarkets notes, “Continued concerns over China and the contagion from there seem likely to underpin interest in gold.”
The market forces keeping gold prices up and down are also exerting pressure over gold ETFs such as the Direxion Shares Exchange Traded Fund Trust (NYSEARCA:NUGT). An increase the bullish interest for the yellow metal will increase bullish interest of gold EFTs – the reverse also holds true. Markit notes that inflows into gold ETFs were a bit stable in August as it climbed by $304 million, after it had seen heavy outflows in July.
However, the uncertainty about when the Fed might raise interest rates has kept gold from bigger declines recently. Gold will continue to hold its safe-haven status until the Fed raise rates and interest-yielding assets becomes more attractive. Robin Bhar, head of research at Société Générale says, “There is still uncertainty about when the fed will lift rates, I think that is the major driver… The longer it is delayed, then that will support the gold market.”
Banks worried about gold
Banks are worried about the prospects of gold and their fears could in turn exert down pressure on gold ETFs such as Direxion Shares Exchange Traded Fund Trust (NYSEARCA:NUGT). ABN Amro has strong bearish views as it expects the yellow metal to drop to $800 an ounce in 2016.
Barclays also notes that the weak demand for gold is not likely to change in the short term, as market forces remain unstable. The bank says, “We see limited support from physical fundamentals, and further support from US rate expectations should also be limited, as the market is already pricing in a low probability of a September hike.”