As gold prices pullback with market uncertainty abating, bullion prices and related miner sector have been losing their luster. Nevertheless, traders have capitalized on the weakness through inverse exchange traded funds.
Comex gold futures have weakened from their $1,351 per ounce highs in early September and now trad around $1,298 per ounce.
The VanEck Vectors Gold Miners ETF (NYSEArca: GDX), the largest exchange traded fund dedicated to gold mining stocks, and the ETF’s small-cap counterpart, the VanEck Vectors Gold Miners ETF (NYSEArca: GDXJ), have both declined since their early September highs, with GDX and GDXJ both testing its short-term 50-day support.
However, aggressive traders willing to bet on more declines for gold miners have increased their bets on the Direxion Daily Gold Miners Index Bear 3X Shares (NYSEArca: DUST) and the Direxion Daily Junior Gold Miners Index Bear 3X Shares (NYSEArca: JDST). Over the past month, DUST has attracted $109.5 million in net inflows and added $9.5 million, according to XTF data.
The Direxion Daily Gold Miners Index Bear 3x Shares tries to reflect the -3x or -300% daily returns of the benchmark NYSE Arca Gold Miners Index, the same underlying benchmark of GDX. The fund includes exposure to a range of small-, mid- and large-cap global gold mining companies.
Similarly, the Direxion Daily Junior Gold Miners Index Bear 3x Shares takes the -3x or -300% daily results of the MVIS Global Junior Gold Miners Index, the same underlying index for GDXJ. This ETF leans toward more small-cap miners that are in their exploratory or early development phase, but the higher risk could potentially equate to larger swings.
The two leveraged inverse gold miner ETFs have been a popular way for traders to capitalize on sudden sell-offs in the gold market. For instance, DUST has surged 28.3% since its early September lows, which coincided with gold miner sector’s high, while JDST has jumped 31.1%.
Potential traders should keep in mind that due to the volatility associated with the sector, the leveraged inverse ETFs may not perfectly reflect their intended -3x strategy over the long-term. Since the ETFs rebalance on a daily basis the compounding of rebalancing could cause the leveraged products to diverge – this is particularly evident during periods of greater volatility. Nevertheless, this has not stopped traders from enjoying the benefits of a quick hedge to capitalize on short-term moves.
For more information on the gold market, visit our gold category.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.