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Gold and Direxion Shares Exchange Traded Fund Trust (NUGT) Suffers Blow From July Job Gains

Gold Bars - Square NUGT - Gold Price

Gold investors enjoyed a decent bullish rally for much of last week but everyone had an understanding that the rally is not a fait accompli until the July jobs report was released. The Bureau of Labor Statistics released a better than expected July jobs report in which U.S. employers added 255,000 jobs to beat the consensus economists’ expectation of 180,000 jobs.

Direxion Shares Exchange Traded Fund Trust (NUGT) Gold

The impressive jobs number caused the bullion to lose its footing in sharp contrast to the gains recorded in the previous sessions. Gold also fell from its previous highs after the impressive jobs number and it touched a low or $1,340.40 to mark the lowest price since July 29. The Direxion Shares Exchange Traded Fund Trust was down 9.50% to close the session at $154.77 last Friday.

Gold bulls are having second thoughts about the current rally

Investors who have interest in gold and the Direxion Shares Exchange Traded Fund Trust have been very vocal about the bullish prospects of the yellow metal. Truth be told, they have more than enough reasons to be strongly bullish because the 26% YTD gains of gold outperforms stocks and other commodities and it erases the 11% FY 2015 losses.

Nonetheless, the sharp gain in the labor market in July is causing investors to rethink their bullish thesis on the yellow metal. For instance, Boris Schlossberg, Managing Director of FX Strategy at BK Asset Management told CNBC’s Power Lunch that “I am taking a pause. I think gold, certainly right now, is due for a correction; it could come down to $1,300.”

Another analyst, AG Thornson on Investing.com has observed that gold prices could fall to new lows in September. He noted that gold prices could bottom out next month at about the same time that the Fed will hold its policy meeting. In his words, “if gold continues to drop, I would expect the bottom to arrive around the September Fed meeting.”

The reason behind the change in the outlook is that strong employment numbers could encourage the Federal Reserve to raise interest rates. An increase in interest rates is often dollar positive while impacting gains in gold. Schlossberg observed that next month’s data could be the important data that would make or mar the bullion this year. In his words, “the next big thing is to watch the data set coming out of the U.S. in the next month.”

Strong jobs data triggers rally in stocks

The strong jobs data has weakened gold and the Direxion Shares Exchange Traded Fund Trust but equities have found strength amidst the chaos. In fact, U.S equities had reasons to soar on the strength of the impressive jobs number. The S&P 500 ended the session with 0.86% gains, the NASDAQ Composite was up 1.06% and the Dow Jones Industrial Average ended the session with 1.04% gains. More so, the strong employment numbers also boosted the value of the U.S. dollar and the Dollar Index gained 0.49% to 96.23.

Peter Hug, global trading director at Kitco Metals noted that “The metals markets are heavily influenced by news bites and psychology. The big jobs number scared the bulls and the requisite reaction was to sel.”  Nonetheless, it is still a little too early to conclude that the bullish rally in the bullion has ended – the rally is not likely to end until the fed makes a decisive move to raise interest rates.

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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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