Gold prices continue to defend the closely watched $1,500-per-ounce level this week, even as chances of an interest rate cut at the Federal Reserve's (Fed's) September Federal Open Market Committee (FOMC) meeting diminish. A rate cut would support gold prices, as the opportunity cost of holding a non-yielding asset would fall.
According to the CME FedWatch Tool, futures markets have priced in a 56.5% chance of rate cut when the Fed releases its decision at 2 p.m. EDT today. Just a week ago, markets were pricing in an almost 100% chance of a rate hike. Despite this, gold remains well bid after a weekend drone attack on critical Saudi oil infrastructure escalated tensions in the Middle East.
"Geopolitical uncertainties have arguably stabilized gold above the psychological $1,500 mark, encouraging a constructive landscape from both a fundamental and technical perspective," said Bill Baruch of Blue Line Futures, per commodities site kitco.com.
Those who want to hedge against ongoing uncertainty or simply speculate on the precious metal's price should add these three gold exchange-traded funds (ETFs) to their watchlist. Let's review the metrics of each fund and explore several gold trading plays that may shine in the current market environment.
SPDR Gold Shares ETF (GLD)
Launched in 2004, the SPDR Gold Shares ETF (GLD) offers investors an asset for tracking the gold spot price, less expenses and liabilities, using gold bars held in London vaults. The fund is structured as a grantor trust, which protects investors, as trustees cannot lend the gold bars. Daily volume of over 12 million shares coupled with a 0.01% razor-thin average spread allows traders to enter and exit positions easily while keeping trading costs low. GLD controls assets under management (AUM) of $43.15 billion, charges a competitive 0.40% management fee, and has returned 15.59% year to date (YTD) as of Sept. 18, 2019.
The fund's price traded within a $7.50 range for the first five months of this year before starting its move sharply higher. Since setting its 2019 high on Sept. 4, the ETF has retraced into an area that finds a confluence of support from the rising 50-day simple moving average (SMA), the 50% Fibonacci retracement level, and an uptrend line extending back to late May. Those who decide to take a trade should set a stop-loss order beneath the September low at $140.06 and target an initial move to this month's high at $146.82.
Direxion Daily Gold Miners Index Bull 3X Shares ETF (NUGT)
With net assets of $1.6 billion, the Direxion Daily Gold Miners Index Bull 3X Shares ETF (NUGT) aims to deliver three times the daily performance of the NYSE Arca Gold Miners Index. The tracked benchmark comprises gold and silver companies that operate globally in both developed and emerging markets. Its top holdings include Newmont Goldcorp Corporation (NEM), Barrick Gold Corporation (GOLD), and Newcrest Mining Limited (NCMGY). Daily dollar volume liquidity of nearly $375 million and a narrow 0.05% average spread make the fund suitable for all trading styles and help minimize slippage. NUGT charges a lofty annual management fee of 1.23% due to its use of derivative products to achieve leveraged returns. As of Sept. 18, 2019, the ETF offers a 0.27% dividend yield and sports a YTD gain of 61.71%.
A 6% gap above the 200-day SMA on May 31 kick-started NUGT's rally to its 52-week high of just over $45. The fund has pulled back in the first half of September, providing traders with a "buy the dip" opportunity at current levels. Price has defended an area of support at $27.50 this week that may give rise to a retest of the previously mentioned 52-week high. Those who open a long position should implement risk management by placing a stop order underneath the low of one of the last three days, depending on personal risk preference.
Direxion Daily Junior Gold Miners Index Bull 3X Shares ETF (JNUG)
The Direxion Daily Junior Gold Miners Index Bull 3X Shares ETF (JNUG) has a mission to return three times the daily performance of the MVIS Global Junior Gold Miners Index. The underlying index consists of small-cap global gold mining companies that generate at least 50% of their revenue from gold or silver mining activities. JNUG, which has an expense ratio of 1.17%, providers short-term traders with geared exposure to lesser-known industry names, such as Northern Star Resources Limited (NESRF), Evolution Mining Limited (CAHPF), and Kinross Gold Corporation (KGC). Almost 3 million shares change hands per day, which offers ample liquidity, although an average spread of 0.10% makes it worthwhile to use limit orders rather than market orders. The six-year-old fund has AUM of $936.61 million, issues a 0.28% yield, and is up nearly 30% on the year as of Sept. 18, 2019.
After finding a floor at $31.50 in late May, the ETF's price tracked gold prices substantially higher over the summer months before profit-takers moved in at the start of September. Selling abated last Friday at a zone of support between $55 and $60, with the price reversing back to the upside this week. Traders who buy here should set a take-profit order in the vicinity of the twin August swing highs at the psychological $100 level and protect capital with a stop positioned just below $60. The trade offers a healthy risk/reward ratio of about 1:3, assuming a fill near $70 ($30 profit per share/$10 risk per share).