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Direxion Shares Exchange Traded Fund Trust (NUGT) should Reward Traders as Gold Climbs Wall of Worry

Direxion Shares Exchange Traded Fund Trust gave investors the scare of their lives last Friday after it ended the session with a 7.25% decline to close at $28.51. Gold investors who have bought into the ETF would have been making a mad dash for the exits because no one wants to start a new year with trading losses. More so, a well-known saying in investment circles posits that “as January goes, goes the year” and a correction in the first week of trading during the year is hardly a great way to start the year.

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Gold to see better days ahead

However, the scare that gold gave investors in the first week of trading in 2016 might not necessarily set the tone for weakness in the yellow metal in 2016. To start with, stocks are starting to face headwinds and the headwinds in stocks might restore confidence in the bullion as a safe-haven asset.

News reports from Asian markets hold that gold climbed higher in trading session this morning as pressure on Asian stock markets push investors into gold. Reuters reports that Spot gold rose 0.1 percent to $1,105 an ounce by 0330 GMT. U.S. gold gained 0.7 percent to $1,105.2.

Ronald Leung, chief dealer at Lee Cheong Gold Dealers Ltd in Hong Kong says that the bullion is having a great time in today’s session because of tensions in the Middle East and Chinese economic woes. In his words, “We have some supportive factors in the market such as Saudi Arabia-Iran tensions, devaluation of Yuan which have prompted safe have appeal of gold,”

The situation is China should be a solid driver for gold and the Direxion Shares Exchange Traded Fund Trust as the nation finds it hard to jumpstart economic growth above 6.5%. The smart money is going into gold and holdings of the world’s largest gold-backed ETF, the SPDR Gold Shares, jumped by almost 4.2 ton last Thursday.

Gold soars in Europe

The yellow metal is also holding up nicely in Europe as The Wall Street Journal reports an uptrend in gold prices. Spot gold was up 0.52% in morning trading in Europe at $1,103.70 a troy ounce to reverse some of the loss that the bullion recorded last Friday.  The jobs numbers from Friday has caused some concern for gold in U.S markets but the bullion seems to be holding steady as we enter a new week.

Commerzbank AG confirms the bullish case for gold in a note saying, “Gold remains in demand in the current market environment and is continuing to trade at above the $1,100 per troy ounce mark as the new week gets under way.” The weakness in the stock markets will continue to buttress the bullish case for going forward – the yellow metal has already added 4% this year. Seamus Donoghue, chief executive at Allocated Bullion Solutions says, “If there is continued weakness in stocks, then we expect gold prices to move higher.”

You might want to exercise more patience before you jump out your position in the Direxion Shares Exchange Traded Fund Trust . All the market signals suggest that gold will have a nice uptrend this week as it climes a wall of worry. In the words of Societe Generale analyst Robin Bhar, “Gold should be a lot higher, you’ve got all the China concerns, the Middle East tensions…clearly there is a lot of overhead selling, which is capping the price,”

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Adam Green is an experienced writer and fintech enthusiast. He he worked with LearnBonds.com since 2019 and covers a range of areas including: personal finance, savings, bonds and taxes.

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