The Wild Ride of a Leveraged Gold ETF

ETF Trends

The Direxion Daily Gold Miners Bull 3X Shares (NUGT) is, as its name says, a triple leveraged ETF.

To be specific, NUGT attempts to deliver three times the daily returns of the NYSE Arca Gold Miners Index, the underlying index for the popular Market Vectors Gold Miners ETF (GDX) . As is now widely known, spot gold has performed poorly this year leading to even more dismal performances for ETFs such as GDX.

And since traditional gold mining ETFs have struggled, NUGT has been far worse. So much so that it has been reverse split twice this year. [NUGT Gets Small-Cap Counterpart]

However, cash continues to pour in gold mining ETFs, including NUGT. In just the past week, the ETF has seen inflows of $117 million. For the year, that number is nearly $1.4 billion.

Conversely, investors have pulled money from the Direxion Daily Gold Miners Bear 3X Shares (DUST) , this year’s top-performing leveraged ETF. DUST has been split in the more positive, traditional sense and has more than doubled since the start of 2013. [Top 10 Leveraged ETFs of 2013]

Still, investors get excited about NUGT, particularly after days like Wednesday when the ETF jumped almost 9%. The ETF is down 3.8% Thursday at this writing and that is not surprising.  As recent history suggest, nearly every big move in NUGT, whether it is confined to one day, several days or even a week, has been met with savage declines.

Or as some savvy traders might argue, big up moves in NUGT are occasions to get long DUST. The proof is in the pudding. Just look at these closing prices for NUGT following recent big moves:

Big move #1: June 26: $45.50 July 1: $61.80 July 8 $47.70

Big move#2: July 18 $58.70 July 23 $85.60 Aug. 6 $51.40

Big move #3: Aug. 7 $50.80 Aug. 15 $98.50 Sept. 12 $54.08

Big move #4: Sept. 16 $54.53 Sept. 18 $73.37 Sept. 23 $50.90

Big move# 5: Oct. 16 $39.72 Oct. 28 $57.37 Nov. 1 $42.41

To illustrate just how gut-wrenching DUST, NUGT and related fare can be, we combined moves two and three into one chart, assuming a purchase of NUGT on July 17. Looks like fun, doesn’t it?

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