Positive news that a U.S.-China trade agreement could be reached in a “phase one” deal in October brought risk back into stocks, which tamped down gains in gold through much of 2019. However, gold got a boost in Thursday’s trading session as a weaker-than-expected Producer Price Index (PPI) evoked risk-off sentiment.
“The gold market is adding to strong gains following the latest Federal Reserve monetary policy announcement and after data highlighted weaker-than-expected producer inflation pressures,” wrote Niels Christensen in a Kitco News report. “Thursday, the U.S. Labor Department said its Producer Price Index (PPI) was unchanged in November, following October’s 0.4% rise; the data was much weaker than expected with economists’ forecasting an increase of 0.2%.”
“At the same time core PPI, which strips out volatile food and energy costs, dropped 0.2% last month, following July’s increase of 0.2%. Economists were expecting to see an 0.2% rise,” the report added. “The disappointing inflation pressure is having a modest impact on gold, pushing prices modestly higher in initial reaction. February gold futures last traded at $1,486 an ounce, up 0.74% on the day.”
Traders looking to buy the dip can play gold miners and look at the Direxion Daily Gold Miners Bull 3X ETF (NYSEArca: NUGT), which makes a play on gold miners. NUGT seeks daily investment results, before fees and expenses, of either 300%, or 300% of the inverse (or opposite), of the performance of the NYSE Arca Gold Miners Index.
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. The Index will limit the weight of companies whose revenues are more significantly exposed to silver mining to less than 20% of the Index at each rebalance date.
Traders looking to play a correlated asset can also look to the price movements in silver via leveraged ETFs like the VelocityShares 3x Long Silver ETN Linked to the S&P GSCI Silver Index ER (NasdaqGM: USLV) and the ProShares Ultra Silver (NYSEArca: AGQ).
USLV seeks to replicate, net of expenses, three times the S&P GSCI Silver index ER. The index comprises futures contracts on a single commodity. The fluctuations in the values of it are intended generally to correlate with changes in the price of silver in global markets.
AGQ seeks daily investment results that correspond to twice the daily performance of the Bloomberg Silver Subindex. The fund seeks to meet its investment objective by investing, under normal market conditions, in any one of, or combinations of, Financial Instruments (including swap agreements, futures contracts, and forward contracts) based on the benchmark.
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