Gold's Sustained Rally Prompts A Closer Look At Direxion's NUGT, DUST ETFs

While innovative sectors such as artificial intelligence consistently grab headlines, few industries have been as holistically profitable as gold. Heading into the tail end of summer, the yellow metal was already a star asset, trading around $3,400. However, in the trailing month, the precious metal swung up about 10%, demonstrating that it still potentially has legs left.

Subsequently, savvy investors are increasingly tuning into the mining ecosystem. One factor that makes miners so intriguing to long-side speculators is the underlying supply crunch. Per a Benzinga report, gold mining is an incredibly taxing endeavor. Specifically, profit margins are low while operations are capital-intensive. Perhaps most importantly, the lead time of 10 to 20 years imposes substantial risks.

Not only that, miners must navigate the increasingly complex web of social, political, technical and environmental hurdles before operations can begin. During this time, demand for gold and other rare resources is rising due to investments and industrial consumption.

Another factor to consider is the Federal Reserve. Expectations ahead of the Federal Open Market Committee meeting for September anticipate that the central bank will cut the benchmark interest rate. If so, this action would mark the first cut since December of last year. It would also come at a time when equity market indices stand at all-time highs.

Not surprisingly, some bullish analysts have begun pounding the table on gold, asserting that the remarkable rally is far from over. For example, Otavio Costa of Crescat Capital noted that the ratio of junior to senior mining stocks “is still 54% below its 2010 peak,” suggesting that the industry is “just at the beginning of this cycle.”

Not to be outdone, veteran economist Peter Schiff celebrated gold reaching a new record high recently. “This bull market is firing on all cylinders, yet hardly anyone is aboard for the ride. Just the way I like it,” Schiff enthusiastically stated.

Nevertheless, investors should also understand the risks involved in betting on gold and the underlying mining complex. Thanks to the surge in price, central banks have reduced their acquisitions of the precious metal. As for the mining complex, the unique challenges facing individual miners — let alone the time required to be fully operational — could lead to significant volatility risks.

Indeed, while the broad consensus appears bullish on gold, not everyone is a decisive cheerleader. Conspicuously, Citigroup is one of the major financial institutions sounding the alarm against excessive speculation. Analysts there argue that there’s a case to be made for a sizable correction — one that could potentially send gold to $2,500 to $2,700 per ounce in the second half of 2026.

The Direxion ETFs: With a convincing case to be made on either side of the aisle, financial services provider Direxion brings to the table two relevant offerings. For the optimists, the Direxion Daily Gold Miners Index Bull 2X Shares NUGT seeks the daily investment results of 200% of the performance of the NYSE ARCA Gold Miners Index.

On the other end, the Direxion Daily Gold Miners Index Bear 2X Shares DUST seeks 200% of the inverse performance of the aforementioned index.

Primarily, a core driver of Direxion ETFs is flexibility. In typical cases, traders interested in leveraged or short positions must engage the options market. However, financial derivatives impose complexities that may not be suitable for all investors. In contrast, Direxion ETFs can be bought and sold much like any other publicly traded security, thus mitigating the learning curve.

Still, these specialized funds have unique risk profiles that must be considered before acquisition. First, leveraged and inverse ETFs typically incur greater volatility than funds tracking benchmark indices, such as the S&P 500. Second, Direxion ETFs are designed for exposure lasting no longer than one day. Holding these ETFs longer than recommended may expose traders to value decay due to the daily compounding effect.

The NUGT ETF: Since the start of the year, the NUGT ETF has been a monster, delivering a return of over 261%.

• Currently, the leveraged bull fund stands firmly above both its 50-day and 200-day moving averages, along with the 20-day exponential moving average.
• While enthusiasm has been unsurprisingly robust, traders should note that volume has been fading since April, potentially warranting a cautious outlook.

The DUST ETF: Speculators of the DUST ETF have been encountering different emotions, with the inverse fund losing 80% year-to-date.

• Based on classic indicators, DUST suffers from a serious momentum problem, with the fund well below key moving averages.
• What’s interesting to note is that Tuesday’s price action has been robust, which saw DUST gain over 4% on heavy volume. This may possibly indicate a willingness to consider the bearish trade.

Featured image by Erik from Pixabay.