Nice Collapse for Gold

by JDH on July 8, 2017

“Nice”, of course, is a relative term.  If you are long and leveraged in gold, the drop from the $1,294 level on June 6 to intra-day $1,206 on July 7 could not be described as “nice”.  A 7% drop in a month is not nice.  If you are looking to add to your positions, perhaps the word nice does apply.

If you, like me, on June 16 bought JDST – Direxion Daily Junior Gold Minders Index Bear 3X Shares for $67.72 and DUST – Direxion Daily Gold Minders Index Bear 3X Shares for $30.89, you are saying one simple word:


So, as a gold bull, why am I buying two leveraged ETFs that only go up if gold mining shares go down?  Simple.  There is a difference between short term and long term.  In the long term, I have no doubt that gold is headed much higher.  I would not be surprised if by Thanksgiving gold is $1,300 per ounce, or even $1,400.  But in the short term, the months of June and July, it certainly appeared that gold was overbought and headed lower.

My strategy was simple:  I can’t pick the top and the bottom, so I trimmed down my gold shares a bit, but I retained most of my position.  Obviously it has lost value, but I own high quality companies that I want to earn long term, so I’m not going to panic over short term swings.

The speculative portion of my portfolio is a different matter.

For the last 18 months I have played NUGT – Direxion Daily Gold Miners Bull 3x Shares NYSE + BATS , a three times leveraged ETF that goes up when gold miners go up.  Last year I made a lot of money in the first six months of the year, and then gave it all back in the second half.  This year I made money through May, and then sold all of my NUGT.

In June, I bought the opposite of NUGT, JDST and DUST, because they go up when gold goes down.

JDST put in a solid base around $50, and since the spring has been making a series of higher highs, which is good.

How high will it go?  I have no idea, but a challenge to the early May level of $100 would not surprise me.  As a result, I have put in sell orders at $96, because I’m not greedy.  Making a 30% return in a month is fine.

If I had to guess, I would guess that the correction in gold will probably end this week, or perhaps next, but certainly before the end of July, so this is a short term play.  Take the cash and run.

I’ve put in a sell order on DUST at $40, because that also seems like a good level.

If gold begins to strengthen this week I’ll cash in and be done.

I will then take the profits from these trades and put in some stink bids on the good gold stocks I already own, to average down, so I am well positioned for the run up in the Fall.

That’s the game plan.

Will it work?  Tune in next week to find out.