Direxion Shares Exchange Traded Fund Trust (NYSEARCA:NUGT) shares jumped on Friday morning as the world continued to get concerned about the fate of the world economy. At time of writing shares in the ETF, which returns triple the performance of a gold miner’s share index, were selling for $34.28.
The reason for the rise in the price of gold appears to be reasonably simple. The yellow metal is acting as a store of value for nervous investors. Over the last few days the world has gotten the jitters when it comes to stocks. Global markets are falling as investors worry about the economic situation in the United States.
Gold price starts to fly
aOn Friday morning gold futures rose to its highest level of 2017 after breaking the $1,300 per ounce mark. Traders and analysts who spoke to Bloomberg about the rise in the gold price appear to believe that the $1,300 level may have been a technical barrier. Now that it has been crossed, some are predicting much greater gains for gold going ahead.
One Russian investment bank is betting that the metal hits $1,400 by the end of the year. That would be a four year high for the gold price. That rise in the price of the base commodity has been reflected in the shares of gold miners, and in the Direxion Shares Exchange Traded Fund Trust (NYSEARCA:NUGT).
It has become clear that the geopolitical risks of a clash in Korea are not the most powerful force driving gold shares upward. The real push behind the gold price is much more complex than that, it seems.
It’s the economy Direxion Shares Exchange Traded Fund Trust
Though there’s a lot of talk about how the political fragility of the Trump administration is causing the gold price rise, the real picture is more complex than that. The market isn’t buying gold because there’s widespread belief that impeachment is on the cards. People are buying gold because President Trump is not going to follow through on his campaign promises.
Despite his naive political approach, Wall Street seems to have been pricing in both tax cuts and some sort of infrastructure stimulus into the stock market. Mr. Trump’s first step on the road to that infrastructure stimulus, a press conference that resulted in the collapse of much public support, makes it seem as if his team are incapable of making common ground, even with people in the Republican Party they already share common ground with.
On top of the rug being pulled out from under the optimists, the problems that the pessimists deal with just aren’t going away. Inflation has remained low in the United States, and growth, despite Mr. Trump’s claims, has not improved. That means that a prolonged low growth period may be ahead for the entire country.
The pop in the Direxion Shares Exchange Traded Fund Trust (NYSEARCA:NUGT) is an economic rather than a political phenomenon. That’s the story for the time being at least. As the story progresses in the United States, the political may lean more and more into the economic for investors and for ordinary people.