Direxion Shares Exchange Traded Fund Trust (NUGT) and Gold See Volatility Treasury Yields Jump

Gold Bars - Square NUGT - Gold Price

Gold is down because of uncertainties on interest rate hike and the Direxion Shares Exchange Traded Fund Trust  is suffering for it. On Tuesday, the yellow metal was not stable as bulls and bears exerted equal and opposite pressure on the bullion. Some worried bulls took profit off the table while some other investors saw the worrisome trend in the market as good enough reason to buy more gold.

At the end of Tuesday’s session, gold for December delivery was flat to settle down at 0.1% at $1,323.70 an ounce. The decline the bullion trade on Tuesday marks the fifth straight day of losses even though the yellow metal had made an intra-day high of $1,330.50 during the session. As expected, the Direxion Shares Exchange Traded Fund Trust was down 11.25% to end the session at $18.39. The ETF is already up 5.40% in pre-market trading this morning though.

Direxion Shares Exchange Traded Fund Trust (NUGT) Gold

Fed uncertainty dampens the gold outlook

Investors with exposure to gold and ETFs such as Direxion Shares Exchange Traded Fund Trust  can expect much volatility going forward. A new phase of volatility will begin in the market because U.S. Federal Reserve officials are divided on raising interest rates. Last week, the fed had hinted that it would go ahead to raise interest rates in response to the ECB’s decision to leave interest rates unchanged.

However, a fed official dropped some hints that reveal the division among fed officials. Federal Reserve governor, Lael Brainard has maintained that the fed should exercise caution on the decision to raise interest rates. She noted that the hawkish disposition of her counterparts towards raising interest rates might alter the dynamics of economic stability.

Brainhard’s words are possibly the last words that will be heard from fed officials until they begin their September policy meeting. On Monday, analysts noted that the economic data due this week could spook or spur gold. However, it seems that both bulls and bears strongly believe that the economic data will cause the bullion trade to turn in their favor; hence, the price of the bullion is not likely to move significantly north or south.

Bill O’Neill, a broker at LOGIC Advisors observes that “There’s nothing frenetic in the gold market… There’s definitely some money being taken off the table in gold, [but] there’s some new money coming in against it.”

Strong dollar weakens demand for bullion

The prospects of gold and the Direxion Shares Exchange Traded Fund Trust  is also being weakened by a stronger U.S. dollar and in increase in Treasury yields. On Tuesday, the U.S. dollar rose 0.5% against a basket of currencies and the WSJ Dollar Index was up 0.7% to 86.82.

A strong dollar makes the bullion expensive for people with other currencies because the bullion is bought and sold in dollars. More so, an increase in Treasury yields will force the demand for the yellow metal lower in the remaining days of this week. An increase in the yields of low-risk assets such as bonds and T-bills often attract people away from gold, which does not pay interest to other low-risk assets that provides an income through yields.

Phillip Streible, senior market strategist for RJO Futures in Chicago observed that “It was looked at as a safety trade early in the morning. As the day weighed on and the Treasury auction failed to produce the results expected, we saw yields jump up and the gold market fell.”

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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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