The Direxion Shares Exchange Traded Fund Trust moved against its recent trend on Wednesday, losing just over 1 percent of its value as the gold market continues to try to price its future based on recent moves by the Federal Reserve. Wall Street seems to be betting that the central bank will further delay a rate rise on the back of poor jobs data unveiled last week.
At time of writing, the Direxion Shares Exchange Traded Fund Trust was trading down by more than 1 percent. The ETF tracks an index of gold mining shares rather than the price of gold itself. It also multiplies the change in the value of that index by three times. That means that the returns on the ETF can be quite out of kilter with those on the spot gold market or gold futures markets.
Gold looks up
On Wednesday gold traded up by a fraction, following a trend set over the last month. The yellow metal, which had a long and hard drop in value through 2015 as traders bet on rising interest rates, is still trading for less than it was just three months ago. The trend, in the wake of the September rate decision and Friday’s jobs report, appears to be upward.
Simona Gambarini, an economist at Capital Economics, told the Wall Street Journal on Wednesday morning that an increase in gold buying by central banks around the world was likely to help prop up the price of the metal. The research house says that China and Russia lead the buying as they, and other central banks, look to move their assets away from dollar holdings.
Those moves have been tested in the Direxion Shares Exchange Traded Fund Trust in recent days. The index is much more volatile, and therefore much more open to speculation, than straight gold buying.
Testing the Direxion Shares Exchange Traded Fund Trust
The Direxion Shares Exchange Traded Fund Trust has been rising steadily since the month of October began, sometimes going against the price of gold itself as traders bet on the future of the market.
Shares in the index have been trading furiously since the market opened on Monday morning and gave traders a way to bet on their analysis of the jobs report.
It’s certain that the fed itself won’t be buying into gold any time soon, but buying from China and Russia might increase demand enough to keep prices stable, and perhaps add to the metal’s reputation as a reserve and store of value.
Gold prices are very sensitive to moves in the Federal Reserve, and we won’t hear from the central bank for some weeks yet. From October 27-28 Janet Yellen and her crew will have another meeting. That’s when they’ll decide what to do about the price of money, and the price of gold.
Until that meeting every single piece of data, and new report forecasting the Fed’s decision making, will add to the massive amounts of volatility in the gold market. Trading leveraged ETFs like the Direxion Shares Exchange Traded Fund Trust is never for the faint of heart, and much less so in the volatile month ahead.