Fed Boosts Bullion, Gold ETFs

Last week, the Federal Reserve opted against boosting interest rates, leaving many market participants feeling that the odds of the central bank raising borrowing costs four times this year, as many thought would be the case heading into 2016, are rapidly dwindling.

“The Fed kept its rate target at 0.25 to 0.5 percent and cut its expected target for the end of the year. The FOMC indicated they would likely raise interest rates only twice this year, down from earlier projections of four increases, bringing their rate expectations closer to most market analysts,” said Direxion in a recent note. 

Two Fed interest rates seems to be the order of the day now. The fewer the rate hikes, the better for gold as bullion has already proven to start the year. The SPDR Gold Shares GLD, the world's largest bullion-backed exchange traded fund is up 17.2 percent year-to-date, a performance few non-leveraged ETFs can match.

No ETF can match the more than $6 billion in new assets added by GLD. That is more than twice as much as the second-best asset-gathering ETF this year. However, the 17.2 percent delivered by GLD seems piddly compared to gold miners ETFs, such as the Market Vectors Gold Miners ETF GDX. GDX, the largest gold miners ETF is up nearly 50 percent this year.

Of course, GDX's good fortune is triple, in theory, the good fortune for the Direxion Daily Gold Miner 3X Bull Shares NUGT. NUGT attempts to deliver triple the daily returns of GDX's underlying index, but NUGT is up a lot more than 150 percent this year. To be precise, the bullish triple-leveraged gold miners ETF is up almost 173 percent.

“The NYSE Arca Gold Miners Index which includes Barrick Gold and Goldcorp, has marched steadily higher on the coattails of the gold-price rally. That’s after three years of slumping prices forced miners to trim their overhead costs, so that the price gains on the metal are more meaningful to the miners’ bottom lines. Some traders think that there’s more to come on the upside. Others are cautious,” said Direxion.

Gold's lengthy bear market, one that was worse for ETFs such as GDX and NUGT than it was bullion-backed funds like GLD, has left some traders skittish about miners. That pensiveness is forcing some out of GDX and NUGT while these ETFs are soaring. For example, GDX and NUGT have bled $385 million and $433.4 million, respectively, this year.