Eureka for Gold Mining ETFs?

Gold bugs, pull the gold bar out from beneath your mattress and admire its luster as the precious metal's price catches a bid. As of Oct. 23, gold futures for December 2018 are up 2.4% for the month, with several analysts predicting further gains. "We have a bullish outlook through the end of the year and into next year," said Jim Steel, chief precious metals analyst at HSBC, as reported in a CNBC article.

Gold prices are likely to be supported in the near term by improved emerging market physical demand and short covering during periods of equity market volatility. The recent sell-off in stocks may also cause the Federal Reserve not to raise interest rates as aggressively, which would put downward pressure on the U.S. dollar and consequently upward pressure on gold prices, as the two assets generally have an inverse relationship.

Those who believe that gold prices have further upside should consider trading one of these three gold exchange-traded funds (ETFs). Here are several trading ideas.

Direxion Daily Junior Gold Miners Bull 3X ETF (JNUG)

The Direxion Daily Junior Gold Miners Bull 3X ETF, created in October 2013, aims to return three times the performance of the MVIS Global Junior Gold Miners Index. The fund invests in junior gold and silver companies from both developed and emerging markets. As of Oct. 23, 2018, JNUG has a year-to-date (YTD) return of -48.48%, but it has returned 12.55% over the past month as the yellow metal has rallied. Investors pay a 0.94% annual management fee to hold the ETF.

The fund's price formed an inverse head and shoulders bottoming pattern between August and October, which suggests further upside. Traders should look to enter the ETF on a break above the current flag pattern that is forming on the far right-hand side of the chart. Consider booking profits at the $12.70 level, where price is likely to find substantial overhead resistance from the downtrend line and 200-day simple moving average (SMA). The 50-day SMA would be a logical place to set a stop-loss order to close a losing trade.

Chart depicting share price of the Direxion Daily Junior Gold Miners Bull 3X ETF (JNUG)

iShares MSCI Global Gold Miners ETF (RING)

Launched in 2012, the iShares MSCI Global Gold Miners ETF tracks the performance of the MSCI ACWI Select Gold Miners IMI Index. JNUG holds global companies that generate their revenue primarily from gold mining. The fund has an expense ratio of 0.39%, slightly below the 0.56% category average. It has a YTD return of -16.47% while returning 7.57% over the past month as of Oct. 23, 2018.

Like most gold ETFs, RING has formed an inverse head and shoulders pattern over the past three months, and it broke above the pattern's neckline in mid-October. Traders should consider opening a long position if price breaks above the flag, which is a continuation pattern. A stop could sit below the candlestick that followed the wide-ranging day on Oct 11. The fund's price may encounter stiff resistance from the 200-day SMA and downtrend line between $16.75 and $17 – a take-profit order just below the round number seems a suitable place to exit the trade.

Chart depicting the share price of the iShares MSCI Global Gold Miners ETF (RING)

VanEck Vectors Gold Miners  ETF (GDX)

Formed back in 2006, the VanEck Vectors Gold Miners ETF attempts to offer similar returns to the NYSE Arca Gold Miners Index. The ETF's portfolio holds global gold companies that may also mine other precious metals. GDX has a YTD return of -13.9%. Like the other gold ETFs, GDX has performed well over the past month, returning 6.72% as of Oct. 23, 2018. It charges a management fee of 0.53%.

Above-average volume accompanied the break above the inverse head and should pattern, which suggests that the move is not a fakeout. Currently, a tight flag is forming on decreasing volume as the market appears to be consolidating in readiness for its next move higher. Those who wish to buy should look for an entry point slightly above the flag's upper trendline. A stop-loss order could sit just below the Oct. 12 long-legged doji. Traders should consider taking profits at the $21.5 resistance area.

Chart depicting share price of the VanEck Vectors Gold Miners  ETF (GDX)
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