Editor’s note: Any and all references to time frames longer than one trading day are for purposes of market context only, and not recommendations of any holding time frame. Daily rebalancing ETFs are not meant to be held unmonitored for long periods. If you don’t have the resources, time or inclination to constantly monitor and manage your positions, leveraged and inverse ETFs are not for you.
After a strong start to the year, precious metal miners sold off sharply and made new multi-year lows. The sector’s rout took prices down to levels not seen since mid-2020,1 which now begs the question: Are they on sale? The performance of mining stocks is highly contingent on the price of precious metals and gold and silver have struggled to generate positive returns in this rising interest rate environment. But as we enter the final weeks of 2022, could a macroeconomic shift alter this sector’s prospects?
How A Bullion Bid Could Lift Miners
Precious metals typically thrive in environments rife with uncertainty, whether it’s geopolitical or monetary. This year has seen no shortage of geopolitical turmoil, but the Federal Reserve has remained steady with their hawkish monetary policy. Since metals offer no yield outside of dividends from shares of mining companies, there’s been little allure from the sector in this inflationary environment. But as October’s Consumer Price Index (CPI)* numbers came in below expectations, the Fed may have initial grounds to slow the pace of rate hikes. This could become a bullish catalyst for the precious metals stocks, and traders may want to pay attention to November’s CPI numbers, which are set to be released on December 13. Investors that are keen on slowing inflation being a potential boon for metal miners may consider Direxion’s Daily Gold Miners Index Bull 2X Shares (NUGT ) which seeks daily investment results, before fees and expenses, of 200%, of the performance of the NYSE Arca Gold Miners Index.*
Below is a daily chart of NUGT as of November 10, 2022.
Will Earnings Embolden the Bears?
Despite prolonged periods of cost-cutting and lean management, many mining companies are struggling with low metal prices, which often have the potential to impact their bottom line. Even though the Fed may slow the pace of rate hikes, they remain in monetary tightening mode, which has historically been a negative for metals. For traders looking to position in accordance with the prevailing trend and bearish case, Direxion offers a Daily Gold Miners Index Bear 2X Shares (DUST ) which seeks daily investment results, before fees and expenses, of 200% of the inverse (or opposite), of the performance of the NYSE Arca Gold Miners Index. Some of the fund’s top holdings (as of 9/30/22) include companies like Newmont (Ticker: NEM) [12.90%], Barrick Gold (Ticker: GOLD) [10.67%], and Franco Nevada (Ticker: FNV) [8.85%]. Newmont and Franco Nevada already reported their Q3 earnings results, and both came in below analyst estimates. However, Barrick Gold’s Q3 earnings slightly exceeded estimates. If an investor believes the mining sector’s prospects rest on monetary policy, they will want to keep an eye on the next FOMC meeting on December 14.
Below is a daily chart of DUST as of November 10, 2022.
Alternative Ways to Prospect Miners
Traders with a bigger risk appetite may consider Direxion’s junior miner funds. The Direxion Daily Junior Gold Miners Index Bull (JNUG ) and Bear (JDST ) Shares seek daily investment results, before fees and expenses, of 200%, or 200% of the inverse (or opposite), respectively, of the performance of the MVIS Global Junior Gold Miners Index.* Traders looking for a broader, leveraged exposure to the mining sector, which includes metals like copper and steel may consider Direxion’s Daily Metal Miners Bull 2X Shares (MNM ) which seeks daily investment results, before fees and expenses, of 200% of the performance of the S&P Metals and Mining Select Industry Index.*
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1 Bloomberg, L.P., September 10, 2022
- The NYSE Arca Gold Miners Index (GDMNTR) is a modified market capitalization weighted index comprised of publicly traded companies that operate globally in both developed and emerging markets, and are involved primarily in mining for gold and, to a lesser extent, in mining for silver. The Index will limit the weight of companies whose revenues are more significantly exposed to silver mining to less than 20% of the Index at each rebalance date. The Index may include small- and mid-capitalization companies and foreign issuers. One cannot directly invest in an index.
- The MVIS Global Junior Gold Miners Index (MVGDXJTR) tracks the performance of foreign and domestic micro-, small- and mid-capitalization companies that generate, or demonstrate the potential to generate, at least 50% of their revenues from, or have at least 50% of their assets related to, gold mining and/or silver mining, hold real property or have mining projects that have the potential to produce at least 50% of the company’s revenue from gold or silver mining when developed, or primarily invest in gold or silver. One cannot directly invest in an index.
- The S&P Metals & Mining Select Industry Index is a modified equal-weighted index that is designed to measure the performance of the equity securities of companies in the S&P Total Market Index that are classified by the Global Industry Classification Standard (GICS) as being in the metals and mining industry. The metals and mining industry includes companies in the following sub-industries: aluminum; coal & consumable fuels; copper; diversified metals & mining; gold; precious metals & minerals; silver; and steel. The Index does not include metal commodities. One cannot directly invest in an index.
- Consumer Price Index (CPI) measures the average change in prices over time that consumers pay for a basket of goods and services.
Leveraged and Inverse ETFs pursue daily leveraged investment objectives which means they are riskier than alternatives which do not use leverage. They seek daily goals and should not be expected to track the underlying index over periods longer than one day. They are not suitable for all investors and should be utilized only by sophisticated investors who understand leverage risk and who actively manage their investments.
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Direxion Shares Risks – An investment in each Fund involves risk, including the possible loss of principal. Each Fund is non-diversified and includes risks associated with the Funds’ concentrating their investments in a particular industry, sector, or geographic region which can result in increased volatility. The use of derivatives such as futures contracts and swaps are subject to market risks that may cause their price to fluctuate over time. Risks of each Fund include Effects of Compounding and Market Volatility Risk, Leverage Risk, Market Risk, Market Disruption Risk, Aggressive Investment Techniques Risk, Counterparty Risk, Intra-Day Investment Risk, and risks specific to investment in securities of Gold and Silver Mining Companies and the Mining and Metal Industry, including Emerging Markets Risk, and Canadian Securities Risk. Because the Funds’ Index is concentrated in the gold mining industry and may have significant exposure to assets in the silver mining industry, the Funds will be sensitive to changes in the overall condition of gold- and silver-related companies. Competitive pressures may have a significant effect on the financial condition of gold- and silver-related companies. In addition, for the Direxion Daily Gold Miners Bull Index 2X Shares, Daily Index Correlation/Tracking Risk and Other Investment Companies (including ETFs) Risk, and for the Direxion Daily Gold Miners Index Bear 2X Shares, Daily Inverse Index Correlation/Tracking Risk, and risks related to Shorting and Cash Transactions. Please see the summary and full prospectuses for a more complete description of these and other risks of each Fund.
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