Direxion Shares Exchange Traded Fund Trust is having it rough in today’s session after a profit-taking induced selloff sent gold prices lower. As at 11:14AM, the ETF was down 6.02% to $59.75 in sharp contrast to the gains that it recorded in yesterday’s session. On Monday, I noted that the ETF is suffering from the aftershocks of weakness in gold and that this week is likely to be a volatile week for investors because of the events of economic importance that were lined up.
Some of the market-moving events scheduled for this week include the pending home sales report and the consumer confidence report. The March jobs report is also due on Friday – investors will be paying special attention to data from the aforementioned reports in order to gauge the health of the economy and to get insights into the outlook of the bullion.
Housing weakens gold but Yellen restores hope
On Tuesday, a report from the housing sector indicates that the economy might be struggling with inflationary trends. The S&P/Case-Shiller Home Price Index, for the U.S. climbed to 5.4% in the 12 months ended in January, which is a little bit higher than a 5.3% increase in December. Rising home prices indicate an inflationary trend and gold often enjoy tailwinds when there is inflation in the economy because investors perceive gold as a better store of value than other assets.
Gold also had a boost in its prospects after Federal Reserve chair; Janet Yellen preached caution in her speech at an event hosted by the Economic Club of New York. Yellen said the fed would need to be cautious about raising interest rates. She posits that the fed could derail economic growth if it raises interest rates too soon even though a rate hike might be a vote of confidence in the economic recovery. She says, “given the risks to the outlook, I consider it appropriate for the (Fed) to proceed cautiously in adjusting policy.”
The bullion soared after Yellen’s cautious words – it gained 1.7% at a point, before it settled with 1.3% gains at $1,237.50 on Tuesday. However, the gain from Yellen’s cautious outlook did not live to see the light of the day today and bullion is down with losses in today session.
Gold is “momentarily” down
This morning, spot gold was down 0.3% to $1,237.84 an ounce in London while futures were down 0.1% to $1,236.30 an ounce in New York. The Direxion Shares Exchange Traded Fund Trust also got hammered this morning and holdings of the popular SPDR Gold Shares ETF declined for the first day in two weeks on Tuesday, by 3.3 ton.
The weakness in bullion and the Direxion Shares Exchange Traded Fund Trust is strange because Yellen’s cautious tone has caused the dollar to fall and a weak dollar often fuels the demand for the yellow metal. One of the main reasons behind the decline in today’s session is that investors are taking the gains recorded on Tuesday off the table. You’ll remember that bullion declined by more than 3% last week and investors are trying to recover part of their losses.
Going forward, the outlook for gold appears to be stronger even though there might be some consolidation in the next couple of sessions. David Govett, head of precious metals at Marex Spectron says “With the market now feeling that an April rate rise is pretty much off the table and starting to speculate that there may actually be none at all this year (a little premature in my view), gold should benefit.”