Direxion Shares Exchange Traded Fund Trust is having a quiet day because U.S. markets are closed today for President’s day. However, markets are open in Europe and in Asia as stocks forex, precious metals, and commodities continue to exchange hands. The precious metals market is seeing a great deal of activity in today’s session as traders and investors continue to review the trade-off between gold and stocks.
You’ll remember that gold has been enjoying tailwinds since the markets opened for trading this year. The weakness in the global equity markets has bolstered the safe-haven status of gold. The sustained weakness in oil prices, return to zero/negative interest rates in Europe, and the cautious tone of the U.S. Federal Reserve about the prospects of gold has caused investors who had hitherto ignored gold to run back into the yellow metal.
The outlook of gold is not bright today
In the year-to-date period, gold has gained more than 12% to erase the 10% losses it had in 2015. When the markets were closing last week, the bullion has crossed the psychological barrier at $1,200. In fact, as at last week Thursday, Gold for April delivery was up by an impressive $53.20 or 4.5% to close at $1,247.80 after it touched an intraday high of $1,263.90. However, it appears that gold is seeing a weakness this morning as the bullion gave back some of the gains from last week in European markets.
Reuters report that gold fell by more than 2% this morning as stocks showed a rebound in European market. This morning in London, spot gold was down 2.3% at $1,209.80 an ounce and U.S. gold for April delivery was down 2.3% to $1,210.90. Direxion Shares Exchange Traded Fund Trust is not in the market today.
In contrast, stocks were up in Europe as UK’s FTSE 100 boasted 2.16% in gains, Euro Stoxx 50 was up 3.24%, and France’s CAC 40 was up 3.51%. The situation is also impressive in Asia as Japan’s Nikkei 225 gained 7.16% after losing almost 10% last week after the Bank of Japan slashed interest rates. Hong Kong’s Hang seng was up 3.27% but China’s Shanghai is down 0.63%. It needs no further mentioning that all major U.S. markets closed with gains last week.
The weakness in gold prices today is not in the least bit surprising after the impressive gains that gold recorded last week. According to an analyst at Capital Economics Simona Gambarini, “we’re not surprised by the correction,” she added. “Gold is probably going to fall further if the situation improves in global equity markets. If the panic subsides, it is probably going to fall to $1,150… It was actually quite positive that gold behaved like a safe haven again, and that showed that in times when there is a lot of volatility in equity markets, gold is benefiting from that.”
Gold has brighter prospects ahead
Despite the weakness in gold today, investors can expect the Direxion Shares Exchange Traded Fund Trust to have a nice showing tomorrow once U.S. markets are opened. For one, the weakness witnessed today can be seen as function of profit taking by some gold bugs. More so, the absence of U.S. players in the market reduces the number of players on the buy side today.
Gold has had a better performance than equities and a broad commodity index as interest rates continue to fall. Analysts at JPMorgan notes that “The move from a perceived ‘low and rising’ real interest rate environment to a ‘low and falling’ scenario would be supportive for gold,”