Simply put, NUGT is a leveraged gold miners ETF. It attempts to seek 300% of the NYSE Arca Gold Miners Index. I may be naive but I am not a fool, although some of you will likely say otherwise considering I am choosing to highlight this ETF for my Investment Snapshot.
In some respect, I would agree with those calling me foolish, but hear me out on this one. It has taken me years to consider a leveraged fund, and it will likely be years before I ever consider another one in the future.
Generally speaking, I do not like leveraged funds at all because of the risk associated with them. Yes, they claim a 3x leverage, however, I know full well that these funds rarely achieve these lofty goals, but some do come close. For the most part leveraged funds leave investors with 300% less in their pocket than when they started.
I invested a small portion of my portfolio (~5%) in NUGT, not for the fundamentals, but because of the momentum of gold, more specifically, the falling dollar. During the last gold run I made a nice profit, but not as much as most other investors. I did not enjoy the 200% – 300% gains as had by some, simply because I realize that gold has been a terrible investment vehicle over time, and I chose to stay out.
Over the last year gold has been a terrific investment, and actually gold miners have done even better. The fundamentals of gold and gold miners are not impressive to say the least, however this is a trade for me, it is not a long term investment by any means.
There are several factors that lead me to believe that gold and gold miners are heading for another sprint, but mostly I am basing this on three things. 1) Gold miners are showing improved earnings 2), the technical’s look strong for another gold run and 3) the dollar is simply too high.
Annual earnings have more than doubled in the gold mining industry over the last few years, and it looks like this trend will continue, at least in the short term. The perfect case in point are my two favorite miners, ABX and MUX. Granted, earnings were pathetic for these companies prior to this but they have really turned things around, with most focusing on debt reduction.
I have always lived by the mantra that fundamentals tell you what company to buy, and the technical analysis will tell you when to buy it. In this case I am willing to make an exception. Other than the earnings growth of gold miners and their focus on debt control, there is really very little to like regarding fundamentals for the value investor.
Most of the miners that I have been tracking over the last year appear to have rebounded from their most recent dip in the industry, likely due to the Trump rally. Although many have not hit their bottoms of last year, they were close. NUGT rebounded off its bottom of February last year and has increased nicely over the last month or so. Looking at a chart of NUGT, there is little denying the strong technical aspects including a nice rebound, along with strong showings in OBV, MACD, RSI, and the fact that it just blew by the 50 dSma.
The USD index spiked to over 102.5 in January ’17 from 92.5 in May of last year. That’s a 10 point upswing in just over 6 months. Generally speaking I wouldn’t get too exceited about this, but this spike is mostly based on rumors and news. The economy is doing slightly better over the last year, but certainly not enough to justify these kinds of movements in the indexes.
The Trump rally was simply the icing on the cake for me, showing that the dollar has nowhere to go but down. Although I am fairly confident our economy will improve over the next 4 years, we are just not there yet, and I can’t justify the growth of the dollar based on this
For this reason, I am going to forget everything I know about gold miners and gold evaluations. The bottom line is the USD index, when it falls, gold will rise. I’m keeping a short leash on this one, and hopefully reap the reward of being patient and alert.
To be clear, NUGT is not a long term investment by any means. This investment should be monitored closely, for me on a daily basis. I have made a small investment in NUGT and it is my opinion over the next month or so, it will prosper. This is a trade with an outlook of weeks, as opposed to months or years. As I write this today, I am already up about 15% for a 2 week investment. As you will see by the monthly averages below, this can fall apart very quickly, it is my objective to catch this at the right moment as this is primed for a nice run.
I will be setting loose stops on this in the beginning, and will tighten them as this moves upward to protect any gains.
December: – 0.39%
I am not telling anyone to buy this or any stock I discuss in this blog, this is simply a vehicle for me to share my thoughts. Leveraged funds are extremely volatile, and are not suitable for most investors. Do your own homework and invest at your own risk.