Gold Mining ETFs Climb with Gold Price Rebound

Joel Anderson  |

The primary gold-mining ETF, the Market Vectors Gold Miners ETF ($GDX), rallied hard on Wednesday, jumping as much 4 percent in early trading before retreating to gains of about 3.5 percent as the afternoon wore on.

The move came in response to spiking gold prices, which jumped over 2 percent in response to declining equities.

Along with the jump by the Market Vectors Gold Miners ETF, several other ETFs tracking gold-mining equities made significant gains. The Market Vectors Junior Gold Miners ETF ($GDXJ) climbed close to 3.5 percent, the iShares MSCI Global Gold Miners ETF (RING) gained almost 3 percent, and the PowerShares Global Gold and Precious Metals Portflio ($PSAU) was up over 2.5 percent.

Those gains were multiplied for leveraged ETFs, with the Direxion Daily Gold Miners Bull 3X Shares ($NUGT) up over 9.75 percent and the Direxion Daily Junior Gold Miners Index Bull 3X Shares ($JNUG) popped over 10 percent. But for those with the misfortune of being invested in leveraged, inverse gold-mining ETFs, it was a predictably terrible day. Direxion Daily Gold Miners Bear 3X Shares ($DUST) plunged over 10.5 percent and the Direxion Daily Junior Gold Miners Index Bear 3X Shares ($JDST) fell just under 10.5 percent.

Regular market watchers may have found the strength of the gold bounce peculiar in the context of the relatively strong economic and trade data of the day. Gold, typically traded as a hedge against inflation, has often declined on days with strong economic data. This is due to the fact that a stronger American economy is perceived as making a tapering of the Federal Reserve’s bond-buying program more likely, something that would hypothetically strengthen the dollar in the long term.

As such, the jobs numbers released by ADP (ADP) on Wednesday, combined with the news that the United States shrank its trade deficit, would typically be expected to have a downward pressure on gold prices.

Wednesday’s spike, though, can most likely be attributed to two factors. Firstly, gold often moves opposite to equities markets, which fell sharply again early on Wednesday before rebounding at 1:30 pm.

Also potentially at play is a technical factor that could be contributing to the strength of Wednesday’s bounce. Gold’s spot price briefly reached a 5-month low at around $1,200 per troy ounce before rebounding sharply, similar to what happened in late June, the last time it dropped to the $1,200 an ounce level. This could mean that $1,200 an ounce is acting as a support level and the precious metal is coming off a double-bottom.

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