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Direxion Shares Exchange Traded Fund Trust (NUGT) in Troubled Waters as Gold Loses Shine

Direxion Shares Exchange Traded Fund Trust might not give investors much reason to smile this week as gold prices fall to the lowest point in four weeks in today’s session. Gold for December delivery was down 1.1% to $1,123.40 per ounce to mark the lowest point since Oct 2. The bullion has been facing headwinds lately after the hawkish tone of the Fed’s statement after last week’s policy meeting suggested the possibility of a Dec. rate hike.

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The market had relaxed in the knowledge that the Fed won’t raise interest rates until 2016. However, the Fed has hinted that the move to raise interest rates will be data-driven and that its Dec. policy meeting might move the needle. Against the backdrop of a possible rate hike, gold investors are choosing to stay on the sidelines and the fact that they are not being cautious around gold is making other investors lose heart.

Gold is not attractive at the moment

The shiny yellow metal has lost much of its appeal and this is obvious as bullish sentiment around the bullion starts to wane. The Fed funds futures is a market gauge used by investors to place bets on how they think the Fed will act in terms of policy. The Fed fund futures jumped to 50% today as the market sees higher chances of a rate hike after the Fed Dec 15-16 policy meeting. The Fed funds future has stayed around 38% before the Fed released its hawkish statement on Oct. 28.

The bear case for gold is already out in full swing as Bob Haberkorn, a broker of RJO Futures notes that “Traders aren’t willing to take any risks on gold until we see the jobs numbers… The Fed has made people very cautious about betting on gold right now.” Another analyst, Andrew Burkly at Oppenheimer, suggests that having gold in your portfolio might right now might not be very smart. In his words, “I’m still pretty bullish on equities until the year end, so I would recommend not having a gold position here.”

Stacey Gilbert, analyst at Susquehanna says that the volatility in the bullion market and the Direxion Shares Exchange Traded Fund Trust could return in full swing. In his words, “If anything, investors continue to suggest that gold will somewhat range-bound, with maybe a slightly bearish bias.”

A glimmer of hope for gold

Despite all the anxiety about the increase in the bearish outlook on gold, an analyst seems to think that the bullion and the Direxion Shares Exchange Traded Fund Trust might have better days ahead. Wolfgang Wrzesniok-Rossbach CEO at Degussa Goldhandel says, “there is higher demand [for gold] on the retail side… If you ask me where from here in the next year, I think $1,500 is more likely than a $1,000 in the next 12 months,”

 

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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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