The markets may be almost fully priced in to the fact that the Fed will raise rates 25 basis points in December and the initial shock of Trump’s presidential election win starts to fade – as a physical asset, gold pays investors nothing, so the investment struggles to compete with yield-bearing assets like Treasuries when borrowing costs rise.
The initial knee-jerk reaction from the rise in yields and strength in the U.S. dollar is petering out, which could mean that the sell-off or overreaction in the gold market could also be coming to an end.
Nevertheless, gold assets may have further room to fall if the U.S. dollar and real bond yields continue to rise.
Investors seeking gold exposure have turned to gold miners as their go-to play this year after years of underperformance in the mining sector produced attractive valuations. Despite the recent falloff in gold producers, GDX still increased 29.1%, NUGT gained 71.4% and JNUG advanced 145.1% year-to-date.
GDX is comprised of global gold miners, with a notable tilt toward Canadian and U.S. mining companies. NUGT tries to reflect the 300% daily performance of the same underlying index as GDX while JNUG takes the 300 daily performance of mid- and small-cap companies.