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Gold Investors Ponder Fed Moves: Direxion Shares Exchange Traded Fund Trust (NUGT)

Gold Bars - Square NUGT - Gold Price

The U.S. Federal Reserve is now adopting a cautious stance towards raising interest rates and gold and Direxion Shares Exchange Traded Fund Trust investors are reacting with mixed feelings. On Thursday, spot gold climbed as much as 0.6% to end the session at $1,357.20 an ounce and the Direxion Shares Exchange Traded Fund Trust ended Thursday’s session with 3.72% gains at $161.80. Yet, the bullion is starting with losses this morn.

Gold (NUGT)

This article explores how the talk about a fed rate hike is causing some investors to increase their bullish outlook while other investors have deepened their bearish outlook on the yellow metal. The matter does not concern digital coins in any way, so if you are a bitcoin trader you may want to look elsewhere.

Talks of a take hike weakens the dollar to strengthen gold

The contents of the minutes of the fed’s July meeting indicates that policymakers did not agree on  whether to raise interest rates in September or in December. The fed officials agree that the economic data suggests an economic boom and that the labor market appears to be upbeat. Nonetheless, many of them are worried that the labor market is still unstable and that a slowdown in hiring could cause problems if the Fed raises interest rates prematurely.

Interestingly, the division between fed officials about the economic outlook is forcing the U.S. dollar lower and the bullion has found strength because of the weak greenback.  Saxo Bank senior manager Ole Hansen observes that “The market has been trying to read into whether Fed official comments for a September rate hike will be repeated by Janet Yellen next week, but there is no clarity yet.”

George Milling-Stanley, Head of Gold Strategy at State Street Global Advisors observed that “The markets have decided that the Fed took a rather dovish tone this time…”I think that’s why the dollar is down and why gold is up.”

Talks of a rate hike forces the bullion into a downward slope

Conversely, another section of the market believes that lack of clarity in the rate hike environment could cause gold and Direxion Shares Exchange Traded Fund Trust to fall lower. Some fed officials have been very vocal about the need to raise interest rates. For instance, San Francisco Fed President John Williams and New York Fed President William Dudley have both maintained that the U.S. economy has improved and that a rate hike is overdue.

Interestingly, if the Fed goes ahead to raise interest rates, the bullion might lose its shine; hence, some investors are staying on the sidelines until fed takes a definite action on interest rates. Reuters’ Wang Tao observed that “The money going into the ETFs looks to be slowing down a bit and it feels that the market has been feeling a bit heavy on the longs… Maybe we need a little bit of washout. Won’t be surprised if we touch new lows of $1,320.”

Following the increase in the bearish outlook, the bullion is starting today’s session with losses. This morning, spot gold has dropped 0.3% to $1,348.31 an ounce and Direxion Shares Exchange Traded Fund is down 1.98% in premarket trading to $158.60.

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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.