Despite geopolitical tensions popping up everywhere investors look, gold prices have failed to capitalize on the yellow metal's safe-haven status amid sustained U.S. dollar strength – typically, the two assets have an inverse relationship, which has put downward pressure on the "risk-off" commodity since late February.
That changed Friday when U.S. President Donald Trump threatened Mexico with a 5% tariff on all imports to curb illegal immigration. The move raised global uncertainty to levels not seen since the fourth quarter of 2018, especially when compounded with renewed U.S.-China trade tensions, Brexit chaos, and China's recent threat to blacklist foreign firms it accuses of damaging its interests. In response, gold futures for August (GC=F) jumped 1.45% to reach a seven-week high and post their first monthly gain in four months.
"We are seeing a drip-feed of events finally impacting gold's safe-haven appeal ... We've been expecting gold to perform well in this environment, and it is living up to our expectations," said Ross Strachan, a senior commodities economist at Capital Economics, per commodities website kitco.com.
Traders can play a gold rally by gaining exposure to gold mining companies using these three exchange-traded funds (ETFs) Let's look over each fund in more detail and discuss some trading tactics to employ.
VanEck Vectors Gold Miners ETF (GDX)
With assets under management (AUM) of $9.18 billion, the VanEck Vectors Gold Miners ETF (GDX) seeks to track the price and yield performance of the NYSE Arca Gold Miners Index. The fund, which formed in 2006, holds well-known names in the gold mining space, including Newmont Goldcorp Corporation (NEM), Barrick Gold Corporation (GOLD), and Newcrest Mining Limited (NCMGY). Its top 10 holdings carry a 61.96% weighting, making its portfolio somewhat top heavy. A narrow average spread of 0.05% and daily dollar volume liquidity of almost $700 million keep trading costs low. The fund's 0.53% management fee sits in line with the 0.54% category average. As of June 3, 2019, GDX offers a 0.56% dividend yield and has declined 3.18% year to date (YTD).
Despite the 50-day simple moving average (SMA) crossing above the 200-day SMA in early February to generate a "golden cross" buy signal, the fund has failed to add further gains since that time. Sentiment changed Friday when GDX broke out from a period of tight May consolidation to close up 3.95% for the day. Significant volume accompanied the move, showing conviction from the gold bulls. Traders who buy the breakout should book profits on a test of the February and March swing highs at the $23.40 level. Place a stop-loss order below Friday's low at $21.19 in case the ETF's price suddenly reverses.
Direxion Daily Gold Miners Index Bull 3X Shares (NUGT)
Launched in 2010, the Direxion Daily Gold Miners Index Bull 3X Shares (NUGT) aims to provide three times the return of the NYSE Arca Gold Miners Index – effectively making it a leveraged version of GDX. The ETF's basket primarily holds publicly traded gold and silver mining companies that operate in both developed and emerging markets. It turns over nearly 8 million shares per day and has an average spread of 0.06% that makes it a suitable instrument for swing traders who want an aggressive bet on the gold price rising. Although the fund has a pricey 1.23% expense ratio, it won't overly affect short-term stays. Traders should note that the ETF rebalances daily, which makes returns greater than one day subject to the effects of compounding. NUGT has $1.08 billion in net assets, issues a 0.39% dividend yield, and is down 17.09% on the year as of June 3, 2019.
NUGT shares tracked lower for most of April before trading in a narrow two-point range throughout May. On Friday, the fund's price closed convincingly above this range and the 200-day SMA, which could trigger further upside momentum as short sellers rush to cover their positions. The relative strength index (RSI) gives a reading below the overbought threshold, allowing ample room for the price to continue higher in the days and weeks ahead. Traders should anticipate a move back up to the crucial $23 resistance area, where the price may find headwinds from a horizontal trendline. Protect capital by setting a stop under the 200-day SMA.
Direxion Daily Junior Gold Miners Index Bull 3X Shares (JNUG)
Created in 2013, the Direxion Daily Junior Gold Miners Index Bull 3X Shares (JNUG) attempts to offer investment results that correspond to three times the daily performance of the MVIS Global Junior Gold Miners Index. The benchmark comprises mining companies that derive at least 50% of their revenue from gold or silver mining activities. JNUG's average spread of 0.13% may be a little wide for intraday scalpers, but it suits traders who can let profits run. Daily turnover of roughly 13 million shares ensures that traders can enter and exit the fund with minimal slippage. Trading at $7.55, with AUM of $706.7 million and paying a 0.66% dividend yield, the ETF has a YTD return of -29.89% as of June 3, 2019.
Since late February, the JNUG share price has retraced toward the $6.5 level, where it finds significant support from the September and November bottoms. The price has oscillated within a descending channel on its move lower to established clear support and resistance areas. Those who trade the ETF should set a take-profit order between $8.50 and $9 – a level where the price encounters resistance from the channel pattern's top trendline and 200-day SMA. Keep a tight stop positioned under the Friday low at $7.04 to cut losses if the upside momentum doesn't immediately follow through.