If the capital markets’ notions are correct, a June pause could make way for July rate hikes. This could put more downward pressure on gold, which has been waning in recent months.
After pushing past the $2,000 price level in April and May, the precious metal has been losing its luster. It’s down 3% within the past month, but still up about 4% for the year.
The Fed will continue to play a pivotal role in how gold responds. More rate hikes are expected, but at a decelerated pace. Rate hikes, however, could keep pushing yields higher and thus apply pressure to gold prices.
“The weakness that we’re seeing in gold is reflective of the expectations for a Fed that is more likely to raise interest rates at the July meeting,” said David Meger, director of metals trading at High Ridge Futures, in a CNBC article.
In terms of building a case for continued bullishness, the prospect of a recession still looms. Continued Fed tightening could spin the economy into a recession, which could fuel a spike to safe haven assets like gold, but the employment numbers thus far have said otherwise.
“We’re seeing continuing jobless claims come down and the ADP private payroll numbers came out better than expected,” Meger added. “As a result, we’re seeing yields increasing and hence some more pressure applied to the gold market.”
A Pair of Bearish ETFs to Consider
If gold continues its weakness, Direxion Investments offers traders a couple of ways to play the move via gold miners. One fund to consider is the Daily Gold Miners Index Bear 2X Shares (DUST), which seeks daily investment results equaling 200% of the inverse (or opposite) of the performance of the NYSE Arca Gold Miners Index.
Another option is the Direxion Daily Jr Gold Miners Bear 2X ETF (JDST), but don’t be fooled by the “junior” designation, as it contains the same 200% leverage as DUST. Instead, JDST seeks equal to twice the inverse of the daily performance of the MVIS Global Junior Gold Miners Index, which tracks the performance of foreign and domestic micro-, small-, and mid-capitalization companies.
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