Gold Bears Kicking Up "DUST" With This Inverse ETF

Given the way U.S. equities have been behaving as of late, it might seem that investors would want to delve deeper into safe haven assets like gold. However, it’s gold bears who have been benefiting from weakness in gold prices as evidenced by the Direxion Daily Gold Miners Bear 2x Shares (NYSEArca: DUST), which is up over 22 percent the last three months.

DUST seeks daily investment results before fees and expenses of 300 percent of the inverse of the daily performance of the NYSE Arca Gold Miners Index. The fund invests in swap agreements, futures contracts, short positions or other financial instruments that, in combination, provide inverse or short leveraged exposure to the index equal to at least 80% of the fund’s net assets.

The index is a modified market capitalization weighted index comprised of publicly traded companies that operate globally in both developed and emerging markets, and are involved primarily in mining for gold and, to a lesser extent, in mining for silver.

Currently, prices for gold could on the brink of fragility, according to some analysts. In particular, the precious metal is having the hardest time trying to break through the $1,300 price ceiling.

“Gold inability to break above $1,300 is an indication that the market is really fragile and I think investors should expect to see lower prices in the near-term,” said Fawad Razaqzada, technical analyst at City Index. “I think you have to continue to play gold to the downside as long as prices are unable to hold sustainable gains above $1,300. On the weekly chart I don’t see any reason to be bullish on gold anytime soon.”

Furthermore, Razaqzada is eyeing gold’s recent low of $1,266 an ounce. Falling below that support level could put downward pressure on prices to $1,256 an ounce.

“If gold prices go below that target, then where the selloff ends is anyone’s guess,” he said.

For the Gold Bulls

Does the latest weakness present a buying opportunity for gold? Gold bulls can look to gold-backed ETFs like the SPDR Gold Shares (NYSEArca: GLD) and SPDR Gold MiniShares (NYSEArca: GLDM), while short-term traders can also play the gold market through miners with the VanEck Vectors Gold Miners (NYSEArca: GDX), Direxion Daily Jr Gold Miners Bull 3X ETF (NYSEArca: JNUG) and the Direxion Daily Gold Miners Bull 3X ETF (NYSEArca: NUGT).

Furthermore, investors can consider funds like the VanEck Vectors® Real Asset Allocation ETF (NYSEArca: RAAX). RAAX uses a data-driven, rules-based process that leverages over 50 indicators, including technical, macroeconomic and fundamental, commodity price, and sentiment. Using this data, it allocates across 12 individual real asset segments in five broad real asset sectors.

The aforementioned indicators identify the segments with positive expected returns. Using correlation and volatility, an optimization process determines the weight to these segments with the goal of creating a portfolio with maximum diversification while at the same time, reducing risk.

One of the allocations the fund added as of late was opportunities in gold. With the latest announcement by the Federal Reserve that it would continue to keep interest rates in check, this could mean for strength for gold if the dollar weakens.

“It increased its gold equity allocation from 13% to 16%,” wrote David Schassler, Portfolio Manager at VanEck. “This was funded by reducing its REIT position from 12% to 9%. RAAX now holds its largest gold allocation ever, with its gold bullion and gold equity allocation accounting for a combined 36% of its assets.

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