Direxion Shares Exchange Traded Fund Trust (NUGT) Recovers from Momentary Weakness in Gold


Direxion Shares Exchange Traded Fund Trust (NYSEARCA:NUGT) saw some early outflow of funds today after the recent rally in gold hit a momentary halt. On Tuesday, reports on Chinese export data fueled a profit-taking action on the part of gold investors in order to take recent gains off the table. Chinese export data was reported with a 25.4% annual drop in February to mark the eighth consecutive month of declines.


The rally in the bullion also weakened after news broke that the European Central Bank might want to boost the economy with additional monetary stimulus. Wall Street expect the ECB to cut the interest rate tomorrow and increase its asset-buying program. However, a deviation from the expectation could alter the balance for the bullion and some investors are trying to lock in gains by selling ahead of Thursday.

This morning, gold for April delivery was down 0.7% to $1, 254.70 an ounce despite the fact that it tested a $1,279 high on Tuesday. Direxion Shares Exchange Traded Fund (NYSEARCA:NUGT) also saw some profit-taking straight out of the gate as it went from a $53.71 open to an intra-day low of $52.00. However, the ETF is back up 2.04% to $54.84 as at 11:10AM EST.

Goldman Sachs deadpans on gold

Given the most recent change in the fortune of the yellow metal, some analysts have started to reconsider their thesis on the prospects of the bullion. On Tuesday, analysts at Goldman Sachs indicated that they were not convinced that the rally in gold and oil prices have a strong support basis – Gold has been on its best yearly start since 1974 and oil is crawling up towards $40 per barrels.

The analysts noted that gains being recorded in the yellow metal can be traced to fear-induced frenzied buying instead of an increase in the real demand of the commodity. Jeffrey Currie global head of commodities research noted that “reflation, realignment and re-levering have driven a premature surge in commodity prices that we believe is not sustainable.”

However, the experts at Global Intergold  believes that gold has “withstood the test of time as an unmistakable symbol of wealth, power and prestige” despite the skepticism in gold. More so, analyst Peter Boockvar of Lindsey Group thinks that Goldman Sachs is wrong in its assertions because the gains being recorded in the bullion have a strong fundamental support.

Boockvar noted that fiscal irresponsibility on the part of central banks and the negative interest rates environment provides gold with reasons to soar.  He especially noted that the recent 5-day rally in U.S. stocks is a dangerous siren luring investors to dangerous waters. In his words, the 5-day winning streak is “a classic bear market rally… It started in the middle of last year and still has room to the downside both in price and time.”

Don’t give up on gold

Investors in the Direxion Shares Exchange Traded Fund Trust (NYSEARCA:NUGT)  might need to exercise patience in the last three sessions of the week as gold sees some profit-taking activity. The yellow metal has been on an impressive rally since the markets opened this year had it has soared by more than 20% in the year-to-date period as seen in the chart below.

Gold Chart

In contrast, stocks have started 2016 on a less than impressive note as U.S. equities starts to feel the crunch of financial instability in the global market. The S&P 500, which represents the broad U.S. equity market is down 2.06% in the year-to-date period. The Dow Jones Industrial average has lost 2.06% and Russell 2000 is down 3.67%. The NASDAQ Composite, home to tech giants such as Apple Inc. and Alphabet Inc has not fared better is in a massive pull back with 5.97% YTD losses.

The fact that the yellow metal has outperformed stocks sis one of the reasons analysts are bullish on the prospects of the yellow metal. Other reason to be bullish about where the bullion is headed is the dark cloud of uncertainty looming over global financial markets.

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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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