Gold Fever Draws Eyes To Direxion's Junior Miners Bull And Bear Funds

At first glance, there doesn't seem to be anything that can stop the stratospheric ascent of gold. Recently, the precious metal hit a fresh record as investors clamored for the perceived safety that the hard asset provides. Escalating fears tied to a potentially ugly trade war and economic uncertainty have contributed to gold's cynical bull market.

Notably, the benchmark SPDR Gold Trust GLD has already gained almost 14% of market value since the beginning of the year. Over the past 52 weeks, the gold-centric exchange-traded fund returned almost 38%. Not surprisingly, funds tied to the precious metal have witnessed significant money inflows. Nevertheless, the underlying mining complex has not kept pace.

All other things being equal, a rising gold price should be positive for gold miners. However, mining enterprises are first and foremost businesses, and businesses struggle with outside factors, such as cost overruns and labor shortages. Of course, the speculation is that eventually, the mining complex may catch up to the underlying asset.

Indeed, some high-profile investors have already stacked their portfolios with promising gold miners. Fundamentally, the reasoning is that economic uncertainty may continue to incentivize institutional demand. If so, the yellow metal may continue its northward trek, potentially eventually catapulting the mining industry.

Nevertheless, not everyone is convinced about the compelling narrative of gold producers, particularly those in the more speculative junior category. Primarily, it's important to realize that central banks are buying gold, not gold stocks. What may be good for the metal itself might not translate downwind to every miner.

Moreover, retail investors themselves have preferred to stick with the actual commodity rather than deal with the vagaries of individual mining enterprises. Combined with the unpredictability of the Trump administration, gold's flashy rise to prominence could just as easily be cut short due to an unexpected policy pivot.

The Direxion ETFs: With so many ways the gold narrative can play out, traders interested in betting on both sides of the fence can do so with Direxion's junior-miner-specific ETFs. For the optimists, the Direxion Daily Junior Gold Miners Index Bull 2X Shares JNUG could be a relevant idea. On the other hand, pessimists can acquire units of the Direxion Daily Junior Gold Miners Index Bear 2X Shares JDST.

Both ETFs seek the daily investment results of 200% (or 200% of the inverse performance) of the MVIS Global Junior Gold Miners Index. Mainly, the purpose behind these leveraged ETFs is convenience. Rather than engage the options market – which can incur significant complexities – everyday investors have easy access to leveraged or inverse trading opportunities.

Direxion ETFs are functionally like any other publicly traded asset. Investors buy shares (or technically units) of these funds, in the hopes that they rise in value. This directional speculation applies to the inverse funds as well. For example, if JDST rises, this suggests that the underlying junior miner index was volatile.

Although the functionality of these Direxion funds is straightforward, prospective investors should realize that leveraged and inverse ETFs should only be held for no more than one day. Otherwise, the cumulative compounding of leverage could create unfavorable performance distortions between the ETF holding and the underlying index.

The JNUG ETF: As one might expect, the Direxion Daily Junior Gold Miners bull fund is off to a blistering start, gaining almost 58% since the beginning of the year.

JNUG has been on a tear recently, gaining nearly 13% in the trailing month. With this move, the leveraged fund is decisively above its 50- and 200-day moving averages.
Looking at a long-term view, it's possible that JNUG is charting a rounding bottom formation. If so, the bulls could be looking to spart a significant move higher.

The JDST ETF: On the other side of the tracks, the Direxion Daily Junior Gold Miners bear fund has struggled to find its footing, losing more than 42% on a year-to-date basis.

A worrying element of JDST is its lack of traction. Presently, the inverse ETF is trading conspicuously below its 50 and 200 DMAs.
Since the first quarter of 2024, JDST has been stuck in a downward spiral. Without a line drawn in the sand, it's difficult to decipher where the bottom might be.