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Gold, Direxion Shares Exchange Traded Fund Trust at Two-Week Low Amidst Rate Hike Talk

Gold Bars - Square NUGT - Gold Price

Gold is starting the new week with losses straight out of the gate because there’s stronger indication that the U.S. Federal Reserve might soon raise interest rates. The yellow metal is already down in Europe this morning and investors in the Direxion Shares Exchange Traded Fund Trust are not waiting for U.S. markets to open before cutting their losses. Last Friday, the ETF ended the session with 7.74% decline at $149.27. This morning, the ETF has lost another 4.47% in pre-market trading.

Direxion Shares Exchange Traded Fund Trust (NUGT) Gold

Gold trades lowers amidst increased clamor for a rate hike

The recent spate of economic data shows that the fed will soon attain its target of full employment and 2% inflation if the current economic trend continues. Interestingly, Fed officials have started making calls for a rapid action to increase interest rates.

Federal Reserve Vice Chairman, Stanley Fisher noted in a speech at the Aspen Institute in Aspen, Colorado on Sunday that “we are close to our targets… Looking ahead, I expect GDP growth to pick up in coming quarters, as investment recovers from a surprisingly weak patch and the drag from past dollar appreciation diminishes.”

More so, New York Fed President, William Dudley had revealed that the Fed could raise interest rates in September. Market watchers have placed the odds of a September rate hike at 50/50 but economic data suggests that the Fed now has compelling reasons to raise interest rates. OCBC Bank analyst Barnabas Gan observes that “The US economic indicators are looking healthy and the probability of a U.S. rate hike will go up further in the coming months, rallying the dollar and putting pressure on gold.”

An increase in the interest rates often causes the gold and Direxion Shares Exchange Traded Fund Trust to fall lower and the yellow metal is already down in response to the increased calls by officials for an increase in interest rates. This morning, spot gold was down 0.3% to $1,337.12 at 0101 GMT. The bullion earlier touched a session low of $1,334.20 an ounce. Gold for December delivery was down 0.4% to $1,341.20 an ounce.

Gains in dollar also weakens the outlook for the bullion

The second reason for the weakness in gold and Direxion Shares Exchange Traded Fund Trust can also be traced to gains being made in the dollar at the expense of the yellow metal. The Dollar index, which tracks the USD against a basket of six major currencies, was up 0.4% to 94.894 to mark the weakest point since June 24. The gains being recorded in the greenback is negative for the bullion because a strong dollar makes the yellow metal expensive for non-U.S. buyers.

Interestingly, the gains in the greenback are not coming out of a vacuum; rather, the recent economic policies of the Bank of Japan suggests is driving gains in the dollar. Bank of Japan Governor, Governor Haruhiko Kuroda had hinted over the weekend that he won’t mind cutting interest rates down into negative territory.

The gains in the dollar are causing bullion to fall lower and analysts think that gold might fall to as low as $1320 an ounce in the coming weeks. Analysts at MKS PAMP Group notes that “the weekend remarks out of the Bank of Japan (BOJ) provided support to the dollar this morning, most pronounced in a sharp move lower in silver.”

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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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