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Direxion Shares Exchange Traded Fund Trust (NUGT) Is Down as Economic Data Weakens Gold

Gold (NUGT)

Direxion Shares Exchange Traded Fund Trust is having it rough in today’s session and the ETF is down 4.05% to $108.53 as at midday trading. The weakness in the ETF today is not farfetched – gold is down and it is normal that ETFs tracking the yellow metal face some downward pressure. It was reported that the bullion is being pummeled today after news broke that U.S. Federal Reserve Officials hinted that they could soon be raising interest rates.

Gold (NUGT)

Prospects of rate hike weakens the bullion

After the April policy meeting, the fed revealed that it is not likely to raise interest rates until it has enough reasons to be strongly confident about the recovery in the U.S. economy. However, on Tuesday, a fed official revealed that he would spearhead the move to raise interest rates in June or July.

To support the pro-rate-hike position, two other fed officials also predicted that the U.S. Fed would raise interest rates three times this year. Atlanta Fed president Dennis Lockart and San Francisco Fed president John Williams both have said that a June rate hike is possible. Before now, the Fed has hinted that it would raise interest rates twice this year, but the new position supporting three rate hikes doesn’t seem to bode well for gold.

As expected, spot gold was down to a session low of $1,266.56 an ounce and it was down 0.9% to $1,268.56 as at 12:30 EDT. MKS SA head of trading Afshin Nabavi notes that the weakness in the bullion today has become a recurrent theme in which there is a selloff anytime the yellow metal tries to cross the $1300 an ounce mark. In his words, “there is always some profit taking coming in the market between $1,285 and $1,295, while buying occurs between $1,260 and $1,270… Only if physical demand comes in, we are likely to see prices above $1,300.”

Economic data puts pressure on gold

The latest set of economic data is also not helping the bullish prospects of the gold and Direxion Shares Exchange Traded Fund Trust in the short term. To start with, the Consumer Price Index, (CPI) climbed more than expected in April. The CPI climbed 0.4% over the previous month and it gained 1.1% year-over-year to mark the biggest gains since February 2013. Saxo Bank senior manager Ole Hansen notes that “the dollar is getting some attention today following the CPI data, and that’s likely to weigh on gold in the short term”.

One of the main reasons behind the increase in CPI is the siring gas prices – the gas index was up 8.1%. PNC chief economist Stuart Hoffman notes that “higher energy prices over the past couple of months are starting to push overall inflation higher, and pass-through from energy to other prices will put upward pressure on core inflation in the months ahead,”

More so, data on the housing situation also suggests that the economy is improving. It was reported that Housing starts gained 6.6% to 1.172 million in April. In addition, building permits increased by 3.6% to 1.116 million. An increase in the housing markets indicates that the economic prospects are brighter and that people are confident enough in the economy to make long-term investments on building a house.

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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.