Direxion Shares Exchange Traded Fund Trust (NYSEARCA:NUGT) and other gold ETFs have had a tough session this week as the yellow metal settles at a one-week low in yesterday’s session. Gold for December delivery fell $9.10, or 0.8%, to settle at $1,124.50 per ounce on Comex yesterday. The loss marked the seventh loss for the yellow metal in nine trading sessions, and it brought the bullion to its lowest settlement since Aug. 27.
Yesterday’s loss was due to fears ahead of key economic data in the U.S. (for employment numbers) and from Europe about the ECB’s position on monetary policy. It turns out that those fears are justified as the weak jobs number and dovish signals from the ECB suggests. The two factors are already forcing the downward pressure on gold and the gold ETFs are feeling the hit. As at 12:10PM EDT, the Direxion Shares Exchange Traded Fund Trust (NYSEARCA:NUGT) is down 5.50% to $2.66.
Weak jobs number weakens gold
The Labor Department reported that the U.S. economy saw the lowest job gains in the last five months in August. In August, U.S. employers added 173,000 new jobs and the unemployment rate fell to 5.1%. The job gain was better that the economists’ estimates but it still small in comparison the job gains from April through July. The drop in unemployment rate to 5.1% marks the lowest level since April 2008.
Analysts believe that the weak job numbers will increase the odds that the fed will raise interest rates this month. Andrew Grantham, economist at CIBC World Markets notes “We’re a little closer to it being game on rather than game over for a September rate hike”.
Carl Tannenbaum, chief economist at Northern Trust Co. notes that “Unfortunately, this number while good is neither so strong as to make clear the need for a rate hike nor so weak that it makes standing pat a clear option”. Brian Bethune, an economist at Tufts University says the fed will want to act now as economy enters slow mode. In his words, “the bottom line is the Fed is just going to sit here.”
Rate hike more likely than ever
From the foregoing, it is obvious that analysts agree that a Sept rate hike is in the works. The fed will be meeting on Sept 16 to 17 and it seems that they will most likely agree on a rate hike. Fed Vice Chairman, Stanley Fischer has been vocal about the need to raise interest rates this month.
An increase in interest rates will put gold and its ETFs such as the Direxion Shares Exchange Traded Fund Trust (NYSEARCA:NUGT) at a disadvantage in relation to interest-yielding assets. In the next two weeks, the market will have a clue on the feds position about raising interest rates; in the meantime, the volatility in the price of the bullion is here to stay.