Direxion Shares Exchange Traded Fund Trust is in a bit of consolidation this morning after touching an intraday high of $123.88 from an opening price of $123.00. Gold started May on an impressive note that could lead the yellow metal to crossing the psychological barrier at $1300. Gold, ETFs that track the yellow metal, and bull-thesis derivatives have been on an upward ascent since the markets opened for trading this year. The bullion is up more than 17% year-to-date and it doesn’t appear to be slowing down.
Gold holds steady at 15-month high
This morning the yellow metal opened with gains in Asian markets as spot gold closed at $1,292.65 in Melbourne Australia. Gold for June delivery was up an impressive 0.6% to $1,298.50 an ounce. Last Friday, the yellow metal rose to touch $1,292.11 to mark the highest level since January 2015—the rally is up and the bullion is up to its highest point in 15 months. The fact that the bullion is holding steady at $1,292 an ounce today suggests that gold bulls might see the yellow metal crossing above $1300 soon.
The main reason behind the strong rally in the bullion and the Direxion Shares Exchange Traded Fund Trust today is the weakness in the US dollar occasioned by fears of prolonged weakness in the U.S. economy and a gloomy economic outlook. Recent economic data has not done an impressive job of allaying the fears of investors about the speed and quality of the economic recovery.
More so, the U.S. Federal Reserve took a cautious note on interest rates and the fed is not likely to raise interest rates until June. The fact that the fed took a cautious note in sharp contrast to its previously confident stance on raising interest rates also suggest that the U.S. economy is not yet on the path to full recovery.
As expected, the US dollar is on a downtrend as investors take a bearish view on the U.S. economy. Reuters reports that the greenback fell to an 18-month low against the Japanese Yen this morning – the dollar index fell for the sixth consecutive session as the greenback weakens against a basket of six currencies.
Where is gold headed?
Asian stocks were weak today, Japan’s Nikkei was down 3% and European stocks were mostly out because London is on holiday. As expected, the weakness in Asian equities lifted the yellow metal. However, U.S. stocks are surprisingly having a splendid session – the S&P 500 was up 0.24%, the Dow Jones Industrial Average was up 0.38%, and the NASDAQ Composite was up 0.03% as at midday (EST) trading.
Sam Laughlin as trader with MKS Group noted that “With the majority of Asia out today and London on holiday tonight we are expecting a range-bound session. However as gold trades towards $1,300, days of thin liquidity can throw up surprises.”
Nonetheless, the recent uptrend in gold has brightened the prospect of ETFs tracking gold such as Direxion Shares Exchange Traded Fund Trust . Analysts are especially optimistic about the prospects of the yellow metal going forward. Edward Meir an analyst with INTL FCStone notes that “gold tipped into breakout territory on Friday, meaning that we likely will see more technical buying … and perhaps see an eventual monthly high of $1,375.”