The Direxion Daily Gold Miners Bull 3X Shares (NYSEArca: NUGT) and the Direxion Daily Gold Miners Bear 3X Shares (NYSEArca: DUST) are two of the most popular leveraged ETFs. They are also two of the most volatile.
Stock fundamentals like cost deflation across the mining industry, share valuations below long-term average and rising M&A are all supportive of the miners space as well, but those fundamentals could be glossed over if the dollar strengthens.
Gold has enjoyed greater demand in a low interest-rate environment as the hard asset becomes more attractive to investors compared to yield-bearing assets. However, traders lose interest in gold when rates rise since the bullion does not produce a yield.
DUST’s “descending 160-day moving average has kept a tight lid on all rally attempts since early May, DUST has recently established a credible foothold above its rising 30-day moving average (a shorter-term trendline we’ve often found useful in tracking the patterns of volatile instruments),” according to Schaeffer’s Investment Research.
The dollar has been one of the worst-performing developed market currencies this year, which has been an assist to gold at various points during the year. However, some currency traders believe the dollar can rebound. While that could be seen as a stumbling block to gold, there are ways for investors to prosper with the yellow metal even if the dollar rallies.
Related: A Multi-Factor, Smart Beta ETF for Long-Term Investors
Data suggest some traders are betting against DUST in a big way, meaning NUGT could be poised to soar in the near-term.
“Short sellers have more than doubled their bets against DUST in 2017. Short interest is up 150% since the start of the year, and — at 5.41 million shares — is hovering just a chip-shot away from September’s record high levels. However, the shorts show no signs of backing down just yet, judging by the 10% increases in short interest during each of the past two reporting periods,” according to Schaeffer’s.
ETF traders who are uncomfortable with the riskier 3x products can also track the miner space with a smaller 2x leverage. For example, the ProShares Ultra Gold Miners (NYSEArca: GDXX) and ProShares Ultra Junior Miners (NYSEArca: GDJJ) take the 2x or 200% daily performance of NYSE Arca Gold Miners Index and Market Vectors Global Junior Gold Miners Index, respectively.
For more information on the gold market, visit our gold category.