Since the start of the fourth quarter, physical gold mostly has been on an upswing. According to Kitco, the price of physical gold has risen nearly 8.5% during that time frame. On the first of October, the precious metal was valued at $1,824 and now sits at around $1,980. During that same period, it has outperformed the S&P 500 which saw a downturn in the latter half of October. It has a quarter-to-date return of 5.01% according to S&P Dow Jones Indices.
For traders who have high-conviction expectations around the near-term upside potential for gold amidst an uncertain environment for financial markets, a leveraged play on gold miners may be an attractive option. Here, using LOGICLY data, we look at two of Direxion’s leveraged gold miners ETFs and their key features.
Although gold is widely considered a store of value, gold miner equities are more volatile. Their share prices generally move along with the price of gold, but the swings can be much more pronounced, largely due to equity risk. This is even more true for junior gold miners, which come with both equity risk and small-cap risk.
See More: “Was October the Month of Gold?“
A Gold Miner ETF
The Direxion Daily Gold Miners Index Bull 2x Shares (NUGT) offers twice the returns of the NYSE Arca Gold Miners Index daily. The index tracks gold mining companies in both developed and emerging markets. The fund has nearly $440 million in assets and an expense ratio of 1.14%.
According to the VettaFi analytics platform LOGICLY, the index allocates nearly 70% of its weight to domestic gold mining firms. Its top holdings domestically are Newmont Corp (13.24%), Barrick Gold Corp (8.74%), Agnico Eagle Mines Ltd. (7.61%), and Franco-Nevada Corporation (7.50%). Outside of the U.S., NUGT offers exposure to mining companies in Australia (10.76%), South Africa (6.61%), Canada (5.76%) and Hong Kong (5.62%). The fund also gives smaller exposures to both Peru (1.12%) and the United Kingdom (0.59%).
See More: “Should Investors Look to Gold for 2024?“
A Junior Gold Miner ETF
The Direxion Daily Junior Gold Miners Index Bull 2x Shares (JNUG) provides leveraged exposure to small-cap gold mining companies at the global level via the MVIS Global Junior Gold Miners Index. Companies included in the index must generate at least 50% of their revenue from gold or silver mining activities. JNUG has $240 million in assets under management and an expense ratio of 1.06%.
It is similar to NUGT in its global scope. However, JNUG’s underlying index has far less exposure to the US. Less than 50% of its components are U.S. companies. Its top three domestic holdings are Kinross Gold Corp. (7.27%), Alamos Gold Inc. (6.72%), and Pan American Silver Corp. (6.27%). Meanwhile, it also provides significant exposure to Australia (18.29%), Canada (14.35%), and the United Kingdom (7.09%) – its top three non-US countries.
Overall, Q4 has been positive for physical gold. For traders who firmly expect that trend to continue for now, NUGT and JNUG can be a tactical way to express that viewpoint within their portfolio. However, they should understand that gold miner stock prices are generally more volatile than the price of gold, and that volatility can be amplified by implementing a leveraged approach.
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