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Direxion Shares Exchange Traded Fund Trust (NUGT) Might Falter as Volatility Wanes on Gold

Direxion Shares Exchange Traded Fund Trust (NUGT) Gold

Direxion Shares Exchange Traded Fund Trust has enjoyed a strong bullish uptrend in the last couple sessions. The gains in the ETF are a function of gains in gold after the U.K voted to leave the EU. The yellow metal gained as much as $80 an ounce to touch a $1,362 an ounce high after the Brexit vote. However, investors have started to take some profits off the table and yellow metal has recorded its first session of loss  after the Brexit vote.

Direxion Shares Exchange Traded Fund Trust (NUGT) Gold

Profit-taking sell-off begins in gold as Brexit volatility wanes

This morning, investors in the Direxion Shares Exchange Traded Fund Trust can expect to see some weakness in their holding. The weakness in the bullion and its derivative instruments today is a function of reduced volatility. The volatility is high becuase the market is coming to terms with possible effects of the Brexit vote. On Tuesday, gold for August delivery lost 0.5% in its trading price to settle at $1,317.90 an ounce.

The bullion had earlier closed on Monday at $1,324.70 an ounce to mark the highest closing price since July 2014. The fact that the bullion closed lower on Tuesday after making a 2-year high on Monday shows that investors have started taking their profits off the table. You can expect to see further weakness in the bullion today once the market opens.

However, you’ll do well to remember that the weakness in gold price is a function of profit-taking selloff. It is not a function of a change in the fundamental bullishness of the bullion. Anthem Blanchard, CEO of Anthem Vault observes that “Given the rapid rise in gold prices from the Brexit results of around $80 per ounce, some profit taking. is a positive signal for a longer-term bullish trend in gold prices.”

Anthem also noted that the profit taking could further boost the bullish prospects of the yellow metal because more investors would love to buy the bullion on the dip. He observed that the Euro zone is still a hotbed of volatility because the Britain’s exit from the could EU trigger the exit of other nations going forward. In his words, “the primary focus of global markets will likely be on further European Union instability in the form of a euro-accepting member potentially exiting the EU next”.

The next stormy wave of volatility is brewing

Direxion Shares Exchange Traded Fund Trust could suffer some weakness in the coming trading sessions because of the profit taking in gold. However, the fundamental factors that support the bullish thesis for the yellow metal are still very much in place. For one, investors are still worried about how the Brexit could affect the global economic scene. It is common knowledge the demand for the yellow metal tends to increase in periods of economic and political uncertainties.

In addition, the markets will face uncertainties arising from nervousness over the possible outcome of the U.S. Presidential elections. Xiao Fu, head of commodity markets strategy at BOCI Global Commodities notes that “There are significant questions to be answered and it will be very difficult to provide all the clarity the market wants.”

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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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