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Leveraged Bear ETF Shines as Gold Prices Lose Luster

This article was originally published on ETFTrends.com.

Gold prices stumbled for the third straight day in a row, taking the shine off gold bulls, but benefitting inverse gold exchange-traded funds (ETFs) like the Direxion Daily Gold Miners Bear 3X ETF (DUST) .

Gold bulls blame a post-midterm election rally that has fueled the greenback in addition to U.S. equities. It didn't help much when the Federal Reserve announced on Thursday that it was keeping interest rates unchanged, but maintained a hawkish stance on an interest rate hike in December--the fourth and final rate hike to end 2018.

The Fed decision was backed by strong employment data, but languishing home sales and October's sell-off that drenched the capital markets with volatility weren't enough to change the central bank's hawkish stance.

"We shouldn't be surprised by either comment as they are simply a summary of the recent data," Michelle Meyer, U.S. economist at Bank of America Merrill Lynch, said in a note. "Interestingly, there was no mention of the softer housing data. Moreover, there was no mention of the sell-off in the stock market in October which implies that Fed officials were largely willing to shrug it off."

Following the midterm election results, the U.S. Dollar Index (DXY) spiked, further depressing gold prices.


Source: tradingeconomics.com

DUST can continue to be the benefactor of rising rates, which could maintain the dollar's upward trajectory in the near term and possibly through the beginning of next year. According to the CME Group's FedWatch Tool, there's a 75.8% chance that the central bank will raise rates for a fourth and final time this year.

"A December rate hike appears to be a likely event at this point, but the outlook ahead is very different as the market and the Fed have differing views on how many rate hikes are in the cards for next year," said Charlie Ripley, senior investment strategist at Allianz Investment Management.

DUST seeks daily investment results equal to 300% of the inverse of the daily performance of the NYSE Arca Gold Miners Index. The index 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.

Based on Yahoo! Finance performance numbers, DUST has generated returns of 48.68% year-to-date and 29.07% within the past year.

Related: What to Expect From Gold ETFs After the Elections

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