Direxion Shares Exchange Traded Fund Trust is seeing steady gains as gold continues to climb as economic conditions turn favorable for the yellow metal. The ETF was up 6.83% in premarket trading today and it is on track to open at a $46 trading price this morning. Reuters report that the yellow metal is already cruising to decent highs as it hit a three-month high to mark four days of consistent gains in the commodity. Last week, the yellow metal soared after the weak jobs report made a rate hike unlikely.
Spot gold was up 0.5% to $1,173.66 per ounce this morning; in fact, the yellow metal touched a $1,174.60 high to mark the highest point since June 29. Gold for December delivery gained $8.30 to $1,173.70 per ounce. Much of the gains being recorded in the bullion could be traced to sense of calmness in the market that the Fed will let sleeping dogs lie and it would not raise interest rates hastily.
The market thinks the Fed will exercise patience
Most of the market seems to agree that the increase being seen in the price of the yellow metal can be traced to the Feds rather than to any significant change in the fundamentals of the bullion. Capital Economics analyst Simona Gambarini “The majority of the rebound can be explained by the Fed… delaying rates, and more investors believing that there won’t be a rate hike this year”.
David Govett, head of precious metals at Marex Spectron confirms the part the Fed is playing in soaring gold prices. He says, “It would seem that the Fed cannot agree on when rates should rise and this uncertainty is leading to short covering and fresh buying in the yellow metal… “It [gold] still remains open to a sharp correction should economic data in the U.S. show improvement or if another Fed speaker should insist on a rate rise this year.”
The situation in China is also giving the Direxion Shares Exchange Traded Fund Trust tailwinds as inflation data from China shows that the world’s largest economy is not yet out of the woods. The fact that China still has issues with its economy could make it harder for the Fed to go ahead with the raise of interest rates – unless it wants to trigger another financial crisis. Simona Gambarini says, “We’ve also seen a bit of weakness in China that has also contributed to the general safe-haven demand for gold as an alternative asset.”
Tailwinds for gold ETFs
Investors in the Direxion Shares Exchange Traded Fund Trust and other gold ETFs can expect to see sustained bullish trends going forward inasmuch as the underlying factors driving the rally in the yellow metal are still intact.
Last week, Ole Hansen, a senior manager at Saxo Bank had noted that “Gold’s technical outlook continues to improve but we are at a critical level …a break above $1,170 could indicate the selling is over and a break below $1,100 could signal we are going down to $1,000”. The yellow metal is now above $1,170 and perhaps the brighter days are ahead.