Gold mining stocks and the corresponding exchange traded funds are volatile, but investors renewing bullion’s safe-haven status has made ETFs such as the Market Vectors Gold Miners ETF (NYSEArca: GDX) more appealing.
GDX, the largest gold miners ETF, is up nearly 7% year-to-date and almost 9.5% over the past week. Of course that is excellent news for the Direxion Daily Gold Miners Bull 3X Shares (NYSEArca: NUGT), the triple-leveraged answer to GDX.
Gold futures and physically-backed ETFs were pressured last year amid speculation the Federal Reserve is preparing to raise interest rates, which has pushed the dollar higher. Higher interest rates would diminish gold’s attractiveness since the precious metal does not pay interest like fixed-income assets.
Even if rates rose a couple basis points, the continued low rate environment is good for gold, which does not pay a yield and would struggle to compete with yield-generating assets when rates rise. Making matters worse for gold ETFs are expectations for soft near-term demand at a time of year when gold demand is usually strong. [Doubters in Gold Rally]
However, volatile global equity markets are prompting investors to change their tunes about gold ETFs early in 2016.
“optionMONSTER’s Heat Seeker monitoring system detected the purchase of 2,200 March 30 calls for $3.70 in less than a minute this morning. Volume surpassed open interest of 1,444 contracts, an indication new money was put to work,” optionMONSTER reported of NUGT.