Time to Get Out of Leveraged Gold Miners ETFs

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July 19, 2016 10:36am NYSE:JNUG NYSE:NUGT

gold standardThe stunning rally of leveraged gold mining ETFs this year cannot be ignored, but looking at the recent price action of these risky funds indicates a big correct is taking shape.


Any mention of the best-performing ETFs of 2016 to this point would have to include a pair of triple leveraged gold miner ETFs: Direxion Junior Gold Miners 3x ETF (NYSE:JNUG) and Direxion Gold Miners 3x ETF (NYSE:NUGT). Since the start of the year, JNUG and NUGT are up an eye-popping 798% and 540%, respectively. Both funds were up huge prior to the Brexit news, but once news hit that Britain was leaving the EU, these two funds just exploded.

As they say, nothing gold can stay, however. These high-flyers have cooled considerably as of late. JNUG, which tracks the so-called “junior” gold miners index (small and midcap names) has plunged more than 13% from its all-time highs hit just a couple weeks ago. NUGT, which tracks the wider gold miners index, has pulled back over 8% in the same period.

Historically, triple leveraged ETFs simply do not perform well over the long term — these are strictly trading vehicles for nimble investors looking to get in and out quickly. Any small downturn in the gold industry will hit these funds extremely hard, with equity evaporating sometimes in a matter of moments.

Despite the fact that gold miners are considering boosting their operations once again, following gold’s big rally this year, we wouldn’t follow their lead here. JNUG and NUGT had their time to shine, and investors are better off taking a more conservative route to capitalize on gold’s recovery — if any at all.


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