Direxion Shares Exchange Traded Fund is likely to start consolidating today as gold steadies. Gold has been on a massive uptrend in the last couple of sessions but the rally in the yellow metal is slowing down. The bullish rally in bullion is slowing down because the first wave of volatility after the Brexit vote has subsided. The yellow metal soared after Britain voted to leave the EU last week on Friday because investors rushed into the safe-haven that the bullion provides.
The rally slowed down on Wednesday and Thursday after investors started taking profits off the table. On Thursday, the yellow metal was slightly up 0.2% at $1,320.90 an ounce. Gold for August delivery was down 0.5% at $1,320.60 an ounce. Afshin Nabavi, head of trading at MKS observes that “we’re all waiting for political news out of the UK. Profit taking and a lack of physical demand is keeping gold hemmed in”.
Gold soars to record the second consecutive quarter of gains
However, the yellow metal has ended June with gains even though the financial markets faced a high degree of volatility. The yellow metal gained 8.7% in June and the Direxion Shares Exchange Traded Fund has gained 72.60% in the same period as shown in the chart below.
More so, the yellow metal gained 24.10% in the second quarter with gains to mark the second consecutive quarterly gain in the bullion this year. The 3X gold-backed ETF also gained a massive 419.4% within the same period as shown in the chart below.
In the first quarter, the bullion recorded gains of 17% to erase the 11% losses that it recorded in 2017. The gains recorded in the second quarter confirm the bullish thesis that 2016 is the year of the gold bug. Nico Pantelis, head of research at Secular Investor observes that the underlying fundamentals of the bullish rally are still in place. He says, “we believe that the drive higher is also due to broader concerns about negative rates, installed by central bankers… We believe that this broader concern will be supportive for gold prices in the coming months.”
Consolidation begins in gold in earnest
There’s no doubt that the yellow metal is headed to $1,400 but the yellow metal might not get there as fast as you’ll expect. Gold and the Direxion Shares Exchange Traded Fund might start consolidating the gains made in the second quarter while waiting for the market to build enough momentum to soar in the third quarter.
On Thursday, Mark Carney, Governor of the Bank of England hinted that the bank might cut interest rates and provide more stimulus for the U.K. economy. Zhan Dapeng, an analyst at Everbright Futures told Bloomberg that “there are risks that policy makers will now have to consider further easing to help limit the fallout from Brexit… Gold could climb further as more investors allocate money into it.” In addition, Rob Haworth, senior investment strategist for US Bank Wealth Management notes “for the market, there’s more to digest and that means you’re not really seeing more long accumulation or capitulation.”