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Direxion Shares ETF (NUGT) Sees High Volumes

March 7th, 2016 by

Gold is once again reigning supreme as the most attractive asset on the markets. As a result, traders are piling into positions in the various exchange-traded funds (ETFs) that are backed by physical stockpiles of bullion.

One of the biggest beneficiaries of this modern-day “gold rush” has been the Direxion Shares ETF (NUGT). Although NUGT is less well-known than its major counterparts like the iShares Gold Trust (IAU) or the SPDR Gold Trust (GLD), it has now surpassed a market capitalization of $1 billion.

Modest Pullback

manufacturingLast week presented an excellent opportunity for traders and investors to open up sizable positions in these various gold-backed funds. Even after a solid rally for gold prices throughout February, there were a few “hiccups” that stalled the momentum for precious metals to begin March. These set backs were due in part to the release of encouraging economic data in the U.S. over the course of the last week, including better-than-expected manufacturing growth.

In reality, the manufacturing data was simply not as bad as everyone hoped. The ISM Manufacturing index registered at 49.5, which represents a slight contraction of the sector. (50.0 is considered a flat reading, with anything above that representing growth and anything below representing contraction.) Even though this would normally be taken as a negative, it was higher than analysts’ expectations of 48.6. Essentially, the markets were getting excited by things not being worse than they are. This should give a fairly good indication of how dismal the economy is performing when people will accept “less of a bad thing” as a reason to celebrate.

Getting Into Gold

undersea gold depositNevertheless, the slight pullback in gold prices offered a buying opportunity as fickle traders quickly dumped their gold positions when they believed the stock market was heading back in a positive direction. As a result, trading volumes for NUGT soared once again when it became apparent that the yellow metal was back in favor. Options activity for the fund remained bullish to close out last week, carrying over into Monday.

The volume of trades seen for NUGT have been robust overall. Since the beginning of the year, average volumes of shares changing hands have been steady around 15 million, about double the volume typically seen during the fourth quarter of 2015. With the gold price surging to a 13-month high, expect to see this kind of action regularly for gold ETFs.

NUGT price chart. Source: Google Finance

NUGT price chart. Source: Google Finance

Shares of NUGT are now trading above $66 per share after a swift 9% increase during early trading on Monday. The share price cleared its 200-day moving average near $50/share at the beginning of February. This moving average is usually a key indicator of directional momentum, meaning that NUGT is firmly in an uptrend. From its levels at the end of July, the Direxion Shares ETF has advanced an incredible 87%, far outpacing the performance of the equities markets.


The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.