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Gold, Direxion Shares Exchange Traded Fund Trust Soars on Bad News

Gold Bars - Square NUGT - Gold Price

Gold  started in August on the wrong foot and the Direxion Shares Exchange Traded Fund Trust didn’t fared any better until poor economic news changed the narrative. Last Friday, the yellow metal touched a 3-week high of $1,335.10 an ounce to mark the highest price since July 12. Economic data on the second quarter GDP showed reported a 1.2% annualized growth rate, which is significantly below the consensus economist estimate of 2.6%. The poor GDP data provided fuel for the bullion to rise while the U.S. dollar crashed to a five-week low after the release of the GDP report.

Direxion Shares Exchange Traded Fund Trust (NUGT) Gold

However, the bullion didn’t keep the gains when the markets opened today because the U.S. dollar managed to find strength against a trade-weighted basket of six currencies. The yellow metal edged lower in the first trading session of this month and the Direxion Shares Exchange Traded Fund Trust was down to a session low of $155.76 in the first hour of trading.

However, the bullion and the Direxion Shares Exchange Traded Fund Trust made an impressive comeback after midday trading. In fact, gold is up 0.15% to $1,353.40 an ounce and the 3X ETF has recovered as it currently trades up with 2.05% gains at $163.84 as at 1:23PM EDT.

Economic data erases gains in gold to propel the greenback higher

The first reason behind the recovery in gold prices today is the data on manufacturing activity in the U.S. A couple of hours ago, the Institute for Supply Management reported that manufacturing activity in the United States is below expectations after it crashed from a 16-month high.

The ISM reports that the index of manufacturing activity in the U.S. came in with a reading of 52.6 down from 53.2 in June. The reading also falls short of the consensus economists’ estimate of 53.0. Investors know that a reading above 50 suggests an expansion in manufacturing activity while a reading below 50 suggests that manufacturing activity is contracting.

The second reason behind the weakness in the yellow metal is the data on U.S. construction spending. Reuters reported that construction spending in the United States fell for the third straight month in June to mark the lowest level since June 2015. Construction spending declined to 0.6% to fall short of the 0.5 percent gains that economists have forecasted.

One of the main drivers of the decline in construction spending is a 0.6% drop in private construction. More so, public construction declined 0.6% to mark the fourth month of straight declines. As expected, the weakness in construction spending suggests that the economy is not healthy and investors are seeking refuge in gold.

More economic data ahead

The weakness in the ISM Mfg data and construction spending has provided investors with many reasons to be optimistic about the prospects of gold and the Direxion Shares Exchange Traded Fund Trust . However, the week is pregnant with a number of important economic data and it might be wise to wait until all economic reports are out before taking a stance on direction of the yellow metal this month.

On Wednesday, U.S investors will be waiting for the July ISM nonmanufacturing survey index to see if it would keep up with the reading of 56.5 that was reported in June. On Thursday, the Bank of England’s governor Mark Carney will hold a press conference to reveal England’s latest policies and forecasts. Wall Street expects the Bank of England to cut interest rates and interest rates will be one of the focal points of the press conference. On Friday, the U.S. Bureau of Labor Statistics will release July jobs number and investors will want to know if U.S. employers trust the economy enough to hire more workers.

 

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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.