Here's How Traders Have Once Again Botched The Gold Miners Trade

As sure as the day is long, there will be traders that get the gold miners exchange traded funds trade wrong. No, it is not always as simple as thinking for every trade in capital markets there has to be a winner and a loser.

As has been previously noted in this space, one way of trading leveraged gold miners ETFs, such as the Direxion Daily Gold Miners 3X Bear Shares DUST and the Direxion Daily Gold Miners 3X Bull Shares NUGT, is to monitor flows data and buy the ETF that other traders are departing. That may not sound scientific, but it has worked. 

Guess What?

That idea is working again. For the October 7 through October 14 period, traders have poured nearly $76 million into DUST and DUST is making them regret that move. The ETF is down nearly 25 percent over the past week and more than 62 percent over the past month.

On Wednesday, the SPDR Gold Shares GLD, the world's largest ETF backed by physical holdings of gold, touched its highest levels since June. That sent the Market Vectors Gold Miners ETF GDX, the largest gold miners ETF, to its highest levels since July. GDX is just 5.8 percent below its 200-day moving average, something the ETF has not closed above since May.

Related Link: Bullish Leveraged Gold Miners ETFs Are On Fire

The $5.4 billion GDX has a three-year standard deviation of almost 37 percent, meaning the ETF is volatile. And that means gaining (or losing) 5.8 percent in a single day is not of realm of possibility. After all, GDX gained more than 6 percent Wednesday on double the average daily turnover. 

Alas, traders are missing out. Again. From October 7 through October 14, GDX and NUGT lost about $200 million in assets combined. Those departures come as NUGT has vaulted its way to becoming Direxion's best-performing triple-leveraged ETF on a month-to-date basis with an October gain now approaching 56 percent.

Conversely, two of Direxion's worst-performing bearish ETFs this month are DUST and the Direxion Daily Junior Gold Miners Index Bear 3X Shares JDST. However, for the five days ended October 13, DUST saw its average volume climb nearly 76 percent above the 20-day average while NUGT's turnover during those five days fell slightly below the 20-day average, according to Direxion data. 

That could be another sign that the long miners trade might have some room to run over the near-term and that run would only be fueled GDX reclaiming its 200-day moving average.