A 'Golden' Economic Debate Highlights Trading Opportunities In Direxion's Gold Miners Bull And Bear 2X ETFs

Gold has historically been considered the archetypal safe-haven asset – and safety appears to be a hot commodity these days. While the Federal Reserve has seen encouraging progress in the fight against inflation, key elements such as housing costs remain a burden on many American families. As such, a flight to defensive investments has invigorated the yellow metal.

Adding to the optimism for precious metals, Goldman Sachs recently issued a positive outlook for the commodity. Its experts anticipate that spot gold could hit $2,700 by early next year. Fundamentally, a contributing catalyst stems from geopolitical dynamics. As an asset considered a safe haven by many, gold generally shares a direct correlation with rising fear. Additionally, the much-anticipated Fed rate cuts could boost in-demand natural assets.

One of the biggest economic headwinds in the post-pandemic paradigm has been the soaring benchmark interest rate. A necessary evil to unwind the monetary excesses during the COVID-19 crisis, high borrowing costs impede financing and commercial activities. Therefore, reducing this burden could boost the economy.

Notably, the Labor Department last month issued a downward revision of 818,000 non-farm payrolls between April of last year to March of this year. Though this downgrade theoretically supports the case for interest rate cuts, some experts have voiced concerns about adopting a dovish monetary policy prematurely.

In the past, rate cuts have signaled economic problems, not opportunities. Such a framework could be deflationary for gold, posing a dilemma for buy-and-hold investors.

The ETFs: Nevertheless, the back-and-forth offers a chance for retail traders to scalp quick profits from the gold market. For this purpose, Direxion offers two leveraged exchange-traded funds. Those optimistic about the yellow metal – specifically the underlying mining complex – may consider Direxion Daily Gold Miners Index Bull 2X Shares NUGT.

On the other hand, those who are bearish may find attractive prospects in Direxion Daily Gold Miners Index Bear 2X Shares DUST. Both ETFs are tied to the NYSE Arca Gold Miners Index but with different objectives. NUGT aims to seek 200% of the daily return of the aforementioned index, whereas DUST targets 200% of the inverse performance.

Whichever fund traders choose, they must be aware that both these vehicles are meant for exposure lasting no longer than one day. Leveraged ETFs are similar to mechanical watches. When just wound, they tell time perfectly. However, as the underlying springs lose tension, these analog timepieces suffer slippage. So it is with leveraged ETFs.

The NUGT ETF: While a strong performer this year, NUGT has incurred sharp losses recently. In the past five sessions, the 2X bull fund slipped about 8.5%.

• The bulls will be encouraged that since late March of this year, NUGT is trading within a rising trend channel of higher highs and higher lows.
• However, the optimists cannot be complacent as Tuesday's volatile session has put the price action right on top of NUGT's 50-day moving average ($44.17).

The DUST ETF: On the other end of the equation, DUST has been trending relatively poorly this year. However, in the past five sessions, the inverse leveraged fund gained over 9% of market value.

• Since late March of this year, DUST has unsurprisingly printed a trend channel featuring lower highs and lower lows.
• Nevertheless, the bears will be looking for a sentiment reversal, with DUST recently blowing past its 20-day exponential moving average ($6.01).

Featured photo by LensPulse on Pixabay.

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