By now, it is not unreasonable to say nearly anyone with a
television or Internet access knows that gold is in full-fledged
bear market. That much was confirmed with last Friday's 4.1
percent tumble, which had bullion residing more than 20 percent
below its record high seen in August 2011.
It looks like things are going to get worse before they get
better for gold as the yellow metal is careening toward its worst
one-day loss since 1980 during Monday's trading session.
Predictably, gold's tumble is bad news for shares of the
companies that extract the precious metal from the earth. At
various points during gold's unprecedented 12-year bull market,
shares of the miners frequently
lagged gold futures
such as the SPDR Gold Shares (NYSE:
), bewildering investors in the process.
The situation for the miners and the corresponding ETFs is
getting worse. On Monday, the Market Vectors Gold Miners ETF
) has slid 8.6 percent on volume that is already more than 50
percent above the daily average. Including Monday's tumble, GDX
is down more than 16 percent in just the past five trading
If years of under-performing gold futures was not a clue,
investors got another regarding the miners in early February
about GDX. That is when Chris Kimble of the eponymous Kimble
Charting Solutions noted that if GDX violated support around
the ETF would continue plunging
. Plunge it has. GDX is trading below $29.50 at this writing.
It is easy to understand why. Over the past five trading days,
Barrick Gold (NYSE:
), Goldcorp (NYSE:
) and Newmont Mining (NYSE:
) are off an average of more than 16 percent. Those are GDX's
three largest holdings and combine for over 30 percent of the
downtrodden ETF's weight.
At around $29.50, GDX is trading more than 22 percent below
its debut price of $38 in May 2006 and risks closing below $30
for the first time since December 2008. This is how dreadful GDX
has been in the past week: Peru's Buenaventura Mines (NYSE:
) is the best performer among the ETF's top-10 holdings with a
loss of 10.2 percent.
Leveraged ETF Worse...Much Worse GDX tracks the NYSE Arca Gold
Miners Index (GDM) and there is one bullish leveraged ETF that
tracks the same index: The Direxion Daily Gold Miners Bull 3x
). This ETF has a memorable ticker, but has been offering up
plenty of forgettable performances lately. Obviously, as a
triple-leveraged ETF, NUGT has been performing much worse than
GDX, something that was fairly easy to spot.
On April 3, NUGT's bearish cousin, the Direxion Daily Gold
Miners Bear 3X Shares (NYSE:
), was highlighted
as one of the bearish ETFs to buy in April
. Since that call, DUST is up more than 38 percent, including
Monday's 23 percent surge.
The recommendation on DUST was due in part to the belief that
NUGT's 1-for-5 reverse spilt,
which went into effect after the close on April
, would not have the desired effect of propping the share up for
That assumption proved accurate as NUGT opened for trading on
April at a post-split price of just over $26 a share. In less
than two full weeks since that reverse split, NUGT has been cut
in half and is down 23.6 percent today on volume that has already
eclipsed five times the daily average.
If current trends hold, NUGT may be heading for another
reverse split in a matter of weeks. As for DUST, Direxion may
need to initiate a forward split because it seems to be a matter
of "when" not "if" that ETF trades over $100.
For more on gold mining ETFs, click
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