Metals and mining stocks, along with sector-related exchange traded funds, rallied Wednesday on the depreciating U.S. dollar and speculation that the Federal Reserve would not be able to further tighten rates on a weakening economy
The SPDR Gold Shares (NYSEArca: GLD), the world’s largest gold-backed exchange traded product, rose 1.0% Wednesday and broke back above its long-term, 200-day simple moving average after climbing 6.5% year-to-date.
The Market Vectors Gold Miners ETF (NYSEArca: GDX), the largest and most heavily traded gold miners ETF, also rose 5.8% Wednesday while the Market Vectors Junior Gold Miners ETF (NYSEArca: GDXJ), which tracks smaller gold miners, gained 4.6%.
Additionally, leveraged long gold miner funds were among the best performing ETFs. The Direxion Daily Gold Miners Bull 3X Shares (NYSEArca: NUGT) and Direxion Daily Junior Gold Miners Index Bull 3x Shares (NYSEArca: JNUG) take the 3x or 300% daily performance of a group of large gold miners and junior miners, respectively. The more recently launched ProShares Ultra Gold Miners (NYSEArca: GDXX) and ProShares Ultra Junior Miners (NYSEArca: GDJJ) take the 2x or 200% daily performance of large miners and junior miners, respectively. On Wednesday, NUGT surged 16.5%, JNUG jumped 13.2%, GDXX increased 10.2% and GDJJ advanced 7.9%.
Meanwhile, the broader SPDR Metals & Mining ETF (NYSEArca: XME) gained 5.4% Wednesday. XME includes a 9.5% in gold producers, 9.4% diversified metals & mining, 8.4% silver and 3.9% precious metals & minerals.
The rally in the miners space also helped the broader materials sector outperform other S&P 500 sectors Wednesday, with the Materials Select Sector SPDR (NYSEArca: XLB) up 1.8%, Vanguard Materials ETF (NYSEArca: VAW) up 1.3% and iShares U.S. Basic Materials ETF (NYSEArca: IYM) up 1.9%.
Precious metals and related mining stocks were outperforming Wednesday due to the weakening USD. The Dollar Index, which follows a basket of developed market currencies, declined 1.5% to 97.43 on Wednesday.
Traders dumped the U.S. dollar after New York Fed President Bill Dudley told news service MNI that financial conditions have tightened in the weeks since the Federal Reserve’s rate hike in December, reports Dan Burns for Reuters.
“One thing I think we can say with more confidence is that financial conditions are considerably tighter than they were at the time of the December meeting,” Dudley told MNI. “So if those financial conditions were to remain in place by the time we get to the March meeting, we would have to take that into consideration in terms of that monetary policy decision.”
As the greenback depreciates, USD-denominated gold grows less expensive for foreign buyers.
“This rally in gold has happened much faster than many people thought it would,” George Gero, a senior vice president with RBC Capital Markets Global Futures, told the Wall Street Journal. “The markets have been taken by surprise.”
Max Chen contributed to this article.