Got an interesting question: What would the fundamentals be behind a REALLY HUGE run-up in gold? I’ll answer that toward the end.
But first down to business! Today let’s roll up our sleeves and look at one of the first-quarter market darlings, NUGT. NUGT is a VERY risky thing, so be warned up front!
NUGT is a 3x ETF, tracking a basket of gold mining stocks. There’s a lot going on in that short description. What it means is that NUGT is leveraged so that a 1% move in the tracked basket translates to a 3% move in NUGT. As gold mining stocks are a very nervous bunch, this means you’re making a nervous thing more nervous. So NUGT is something you want to trade with caution, not abandon.
As an ETF you can trade NUGT like a stock. The price moves during the day, with lots of volume, so getting in and out is easy, even if the price is not always predictable. NUGT has been known to move 40 cents in a single second, especially near the open and the close. And sometimes even more, if there’s news out. You’ve been warned!
I trade NUGT technically, meaning with an eye on the price levels on the chart. What’s the chart telling us now?
The 1-year chart of NUGT shows a sobering story. After a choppy run-up from January to August, NUGT has dropped from about 36 on August 12th to almost 11 today. That’s a 68% drop in two months! No wonder the gold bulls seem a bit panicked.