NUGT – The best way to gamble on gold

by JDH on July 20, 2019

Let’s talk about NUGT – Direxion Daily Gold Miners Index Bull 3x Shares, an ETF leveraged three times to the underlying gold shares.  If gold is going up, and I believe it is, you have a few choices:

  1. Buy physical gold – good idea, but you have to store it, which is not particularly convenient, and you have no leverage
  2. Buy gold stocks – easy to to, you get some leverage, but you have to buy the correct stock(s)
  3. Buy NUGT – maximum leverage

A prudent person would do all three.  Have some physical gold, buy a basket of good gold stocks (to diversify your risk), and put your gambling money in NUGT.

How much in NUGT? That depends on your appetite for risk.  If you are crazy, bet it all.  If you are somewhat more risk averse, perhaps a small portion (5%?) of your portfolio is gambling money.

I call it gambling because NUGT is very volatile.  In the pas five days it traded as low as $28.32 and as high as $36.29, for a swing of 28% in less than four days.

That’s volatile, so the prudent speculation strategy is to place below market limit orders so you are not buying at the peak of the market.

Here’s a long term view:

Here’s a four year chart of NUGT.  During that period it peaked at $140 three years ago, and traded as low as $10.58 back in September, 2018.  That’s volatility.  The spike to $35 this week looks like a big spike, and it is, but in historical terms there are a lot of stops to go before it’s back over $100.  The next resistance levels appear to be:

  • $43
  • $45
  • $68
  • $95
  • $140

Looks like a lot of room to run to me.

So what to do?

Common sense would dictate that you watch the RSI, currently at 73, which is very high, and place buy orders when it drops closer to 50, and load up the truck at 30 and below.

If gold keeps rocking, this is an easy double.

If not, it’s back to $10 and you’ve lost two thirds of your money.

Oh well, that’s NUGT.

Enjoy the heat.  More next week.