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Direxion Shares Exchange Traded Fund Trust (NUGT): Gold is Likely to be Down for Three More weeks

Direxion Shares Exchange Traded Fund Trust (NUGT) Gold

Direxion Shares Exchange Traded Fund Trust is being set up for another wave of uncertainty after gold fell for the fifth straight session on Monday. The yellow metal has been causing sleepless nights to investors since last week when fresh indications emerged that the U.S. Federal Reserve might raise interest rates in June. Some fed officials have also voiced their support for a June rate hike and the upbeat tone has been strengthening the dollar while making the bullion less attractive as an investment.

Direxion Shares Exchange Traded Fund Trust (NUGT) Gold

The yellow metal crashed to a session low of $1,243.50 a troy ounce on Monday before it finally settled around $1,251. This morning in Asia, the yellow metal dipped to a three and a half-week low as the bull camp starts to buck under the pressures of a June rate hike. Reuters report that Spot gold had fallen 0.3% to $1,244.91 per ounce by 0332 GMT.

Don’t buy gold until this happens

Gold is up more than 20% in the year to date and the Direxion Shares Exchange Traded Fund Trust has already doubled its trading price. The fact that gold was the best performing commodity in the first quarter seems to be boosting the confidence of the bullion bulls. Hence, a number of vocal bulls are encouraging investor to buy the yellow metal on the dip now that its prices are low.

However, before you bring out your checkbook to start buying on the dip, you might want to take a minute to two to think about the position of Dennis Gartman, a high-profile commodities investor and the publisher of The Garman Letter. Gartman thinks that it is smarter to stay on the sidelines of gold in the short term and watch the core bulls and bears knock themselves out. He specifically thinks that it might be wiser to wait until after the rate hike in June before buying the yellow metal.

He opines that it might be smarter to err on the side of caution until the current volatility that was triggered by the talks of a rate-hike evens out.  He noted that the sell-off occasioned by the fears of an increase in interest rates is not likely to stop until the fed takes decisive action. In his words, “There has been an aggressive seller of spot gold at 1,270 to 1,285… Whoever that person or institution is will likely continue to be there until after a rate increase”.

Gartman also thinks that investors might want to see how the trend of the rising dollar pans out before they make any significant investments into gold or Direxion Shares Exchange Traded Fund Trust . In his words, “If you have to trade gold, stay on the sidelines in terms of U.S. dollars… I would be hesitant at owning gold in dollar terms…  As we know, a strong dollar begets weaker commodity prices.”

Gold likely to be weak for three more weeks

Interestingly, many commodities traders are skeptical about the possibility of the June rate hike and it is quite possible that Fed officials will come out with another round of fedspeak as to why they couldn’t raise interest rates in June.  Bob Haberkorn, senior market strategist at RJO Futures notes that “the minutes from the last meeting are going to hang over our head for the next two or three weeks.” Haberkorn also  notes that “the sentiment is bullish, but people are [watching] the Fed right now and not willing to put more risk on.”

 

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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.

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