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Gold mining stocks have regained their luster after a brief retracement. Gain exposure to the group with these two leveraged ETFs.
Gold prices recently reached the $1,800 level for the first time since 2011. The Direxion Daily Junior Gold Miners Index Bull (NYSE:JNUG) is up 278% since the stock market bottomed on March 23, but that's not the whole story on the JNUG ETF.Source: Shutterstock There are plenty of good reasons to be buying gold, gold stocks and gold ETFs these days. The near-term outlook for gold prices certainly seems bullish. But there are also good reasons to expect the JNUG ETF is headed lower in the medium-term.In addition, the price of gold will likely underperform in the long-term. At this point, gold is a great medium-term trade, but a terrible long-term investment. But the JNUG ETF is too dangerous to hold even in the medium-term.InvestorPlace - Stock Market News, Stock Advice & Trading Tips Gold's Momentum and the JNUG ETFBy no means do I believe that gold prices have peaked at $1,800 per ounce. Gold prices are on the rise in general over concerns of the massive stimulus action the US government has taken this year to support the economy. * 10 Cybersecurity Stocks We Need Now More Than Ever The general idea is that the more money the government prints out of thin air, the less the dollar will be worth. In theory, that thesis certainly makes sense. In reality, the world has decided the U.S. dollar is the benchmark currency.So there isn't necessarily a direct correlation between the total number of dollars and the value of the dollar. The value of the dollar is more dependent on how much investors around the world trust the U.S. dollar.Fortunately, gold investors have a template for how the precious metal reacts to massive stimulus programs. From 2008 to 2012, the US government enacted about $1.8 trillion in fiscal stimulus. So far this year, the government has authorized $3.6 trillion in fiscal economic support. More is likely on the way.The stock market bottomed in early March 2009. However, the price of gold didn't peak until mid-2011. There's no reason to suspect anything different this time around.Investors concerned about the impact of the stimulus and the possibility of more stimulus will likely keep buying gold. Interest rates will remain at near 0% for at least another couple of years. I'd be very surprised if the gold bull market ends here. JNUG ETF Has Major ProblemsDespite my bullish medium-term outlook for gold prices, JNUG is not the play. If JNUG traders don't understand the risks behind holding the fund, they have very short memories. Gold prices may be at their highest levels since 2011. The SPDR Gold Trust (NYSE:GLD) is up 21% year-to-date. But the ETF is still down 82.1% this year.To understand why JNUG is a trash investment, you first have to fully understand what it is. The JNUG ETF is designed to provide 2x-levered exposure to the Market Vectors Junior Gold Miners Index. In other words, it provides leveraged exposure to gold mining stocks, which should perform much better when gold prices rise.Unfortunately, the biggest problem with funds like the JNUG is contango. Since these types of leveraged funds are constantly rolling over their futures contracts, they are constantly losing value. Forward-month contracts are almost always more expensive than current-month contracts. In other words, JNUG is constantly selling lower-priced expiring contracts and buying higher-priced futures contracts to replace them.Contango is the primary reason why the GLD ETF is up 48.9% since the beginning of 2014 and JNUG is down 99% in that same time.The JNUG ETF is designed for day trading, which is essentially gambling unless you are a professional. Buying and holding the JNUG ETF for more than a few days at a time is essentially flushing money down the toilet. Gold Is a Bad InvestmentAs if contango weren't bad enough, gold itself is a historically terrible long-term investment compared to stocks.In the past 10 years, the price of gold is up 36.2% overall. In that same stretch, the S&P 500 is up 201%. Over the past 30 years, the price of gold is up 400% compared to an 801% gain from the S&P 500.Extend that out 100 years, and the S&P 500 is up 40,835% compared to just 8,588% for gold. For over a century, gold has averaged a 4.5% annual gain. In that same stretch, the 30-year rolling average annual return of the S&P 500 has never dropped below 8%. Even if you invested in stocks just before the beginning of the Great Depression, you would have averaged an 8% annual return over the next 30 years.As legendary investor Warren Buffett once said, gold simply can't compete with the stock market: "Gold will never produce anything. Gold has two significant shortcomings, being neither of much use nor procreative … It will remain lifeless forever."Gold is a great long-term hedge against inflation if that's your only concern. But a certificate of deposit will accomplish the same thing with essentially no downside risk. Gold prices will likely continue to head higher in the next couple of years. But gold has always been a terrible long-term investment compared to stocks. And the JNUG ETF is a terrible investment on any timeframe beyond a handful of days.Wayne Duggan has been a U.S. News & World Report Investing contributor since 2016 and is a staff writer at Benzinga, where he has written more than 7,000 articles. Mr. Duggan is the author of the book "Beating Wall Street With Common Sense," which focuses on investing psychology and practical strategies to outperform the stock market. As of this writing, Wayne Duggan does not hold a position in any of the aforementioned securities. More From InvestorPlace * Why Everyone Is Investing in 5G All WRONG * America's 1 Stock Picker Reveals His Next 1,000% Winner * Revolutionary Tech Behind 5G Rollout Is Being Pioneered By This 1 Company * Radical New Battery Could Dismantle Oil Markets The post Here's What Makes the JNUG ETF a Great Trade but a Terrible Investment appeared first on InvestorPlace.
The stock market's recent volatility has brought about a new generation of traders who use low-cost brokers in order to place trades via apps. But with many of the barriers to trading removed, quite a few novice traders have decided to dive in the deep end using complex investment vehicles to make a quick buck. Increasing interest in Direxion Daily Junior Gold Miners Bull 2X ETF (NYSEARCA:JNUG) stock is a perfect example.Source: Shutterstock Data from millennial-favorite trading app Robinhood shows that JNUG was one of the app's most popular ETFs, with more than 43,000 investors adding it to their holdings. The platform also noted that it believes its users could make up a significant portion of the leveraged ETF's holders. Why JNUG is Riddled With RiskLeveraged ETFs are often regarded as sophisticated investment vehicles that should be left to the pros, or at the very least, seasoned day-traders. There are a few reasons for that, one of them being the discipline and understanding investors need in order to use them properly. InvestorPlace - Stock Market News, Stock Advice & Trading TipsAs InvestorPlace's Tezcan Gecgil laid out in detail earlier in May, JNUG isn't a simple bet on gold. It tracks the MVIS Global Junior Gold Miners Index and aims at delivering a 200% or -200% return for that index each day. Importantly, the 'single day' aspect of JNUG's leverage means it's not a stock you can add to your portfolio and hold on to because the losses will add up. * 7 Great Biotech Stocks to Buy and Hold Now Plus, the gold miners JNUG is investing in are some of the riskiest in the business. Add in ongoing gold price volatility and you have a recipe for a nail-biting investment vehicle that isn't worth the headache for 9 out of 10 retail investors. First Time Traders Dive in DeepWhat's troubling is the fact that Robinhood's user base is primarily made up of retail investors. In fact, the firm even claims most of them are trading stocks for the first time ever. It's hard to imagine any scenario in which Robinhood's traders should be picking up JNUG stock -- unless they're day traders.The lockdowns gave people more time to take an interest in their financial health, and many have pursued investing as a result. But the sudden leap into risky investments like JNUG stock and bankrupt rental car company Hertz (NYSE:HTZ) has been unexpected.Anecdotal evidence suggests that some of the interest comes from ex-sports betters who are used to taking on a great deal of risk. This brand of traders is best characterized by Dave Portnoy of Barstool Sports, who has been trading since the March crash and updating followers on his bets via videos uploaded to social media. Leave Gambling Out of ItAs I mentioned before, there's definitely a market for JNUG stock, but not a huge one. And certainly not one for first-time retail traders. The leveraged ETF is better left to more experienced traders who have the time and dedication to use it in addition to other investment vehicles.Robinhood and the plethora of other low-cost trading platforms have been a huge step forward in making investing more accessible to the masses. But the flip side of that coin is that many people are taking on a huge amount of unnecessary risk. While it can be tempting to make big, risky bets in hopes of a large payoff, for the average investor, slow and steady growth is the best strategy. Find Another Way to Buy GoldIf buying gold for protection is your aim, JNUG stock couldn't be further from the goal. Instead, there are a lot of ways to use gold as a defensive play in your portfolio. SPDR Gold Shares (NYSEARCA:GLD) is an ETF that tracks the performance of gold bullion itself. There are others like the Sprott Gold Miners ETF (NYSEARCA: SGDM) that offer exposure to mining companies. For those who are interested in taking on a bit more risk (but perhaps not as much as JNUG stock has to offer), there's the VanEck Vectors Junior Gold Miners ETF (NYSEARCA:GDX). Laura Hoy has a finance degree from Duquesne University and has been writing about financial markets for the past eight years. Her work can be seen in a variety of publications including InvestorPlace, Benzinga, Yahoo Finance and CCN. As of this writing, she did not hold a position in any of the aforementioned securities. More From InvestorPlace * Why Everyone Is Investing in 5G All WRONG * Top Stock Picker Reveals His Next 1,000% Winner * The 1 Stock All Retirees Must Own * Look What America's Richest Family Is Investing in Now The post JNUG Stock is a Terrible Investment For Most Types of Traders appeared first on InvestorPlace.