Gold is being lifted this year by a weaker currency, a more dovish Federal Reserve than predicted, and new geopolitical concerns. The SPDR Gold Shares (GLD), the world’s largest exchange-traded fund (ETF) backed by physical gold holdings, is up 9%, but the US Dollar Index is down 1.2 percent. When gold rallies, there’s a good probability gold miners’ stocks and ETFs will outperform. This is the case this year, with the largest gold miners ETF, VanEck Vectors Gold Miners ETF (GDX), up 12.3 percent.
It’s not surprising to see some traders pour into leveraged ETFs when gold miners’ stocks climb, as they are right now. Bullish leveraged ETFs are typically more popular than their non-leveraged bullish counterparts, but few leveraged sector and industry ETFs can match the popularity and magnitude of the Direxion Daily Gold Miners Index Bull 3X Shares (NUGT). (For more information, see the Gold Miners Bull 3X (NUGT) ETF.)
NUGT aims to triple the NYSE Arca Gold Miners Index’s daily returns, which is the same index that GDX tracks. Consider using GDX as a leveraged asset. It’s like piling volatility on top of piling volatility. GDX has a three-year standard deviation of over 46%, or more than double that of the S&P 500, a characteristic that is amplified by NUGT. However, the ETF’s volatility might pay handsomely in the form of large intraday gains, which is likely to keep traders coming back. Traders are doing exactly that right now. According to Direxion data, NUGT averaged daily inflows of more than $6.8 billion for the 30 days ending April 7.
Only one of Direxion’s leveraged bullish ETFs added more additional assets and was more volatile than NUGT over that time period. The Direxion Daily Junior Gold Miners Index Bull 3X Shares won both awards (JNUG). JNUG, which is well-known in its own right, aims to treble the MVIS Global Junior Gold Miners Index’s daily returns. Consider volatility in the context of JNUG. Small caps and gold miners, on their own, can be risky investments. The volatility rises as a result of the combination. JNUG is a triple-leveraged version of the VanEck Vectors Junior Gold Miners ETF (GDXJ), which has a three-year standard deviation of just under 50%. (For more information, see the Top 3 ETFs for Long-Term Investors.)
That isn’t enough to deter traders. According to issuer statistics, traders have added an average of $9.7 million per day to JNUG during the last month. (For more information, see the list of the best gold mining ETFs.)
Is JNUG a decent exchange-traded fund (ETF)?
JNUG aims to provide daily returns three times higher than the MVIS Global Junior Gold Miners Index.
Small-cap firms and gold prices are both more volatile than the typical investment, so JNUG is a highly volatile and speculative security when both aspects are taken into account.
The JNUG ETF had a 27 percent year-to-date return. However, it is down 17.9% from July of last year.
Is JNUG a leveraged exchange-traded fund (ETF)?
The MVIS Global Junior Gold Miners Index is tracked by JNUG (MVGDXJ). It also aims for a daily return of 200 percent or -200 percent, i.e. 2X, of the benchmark index. Because of its daily leverage, JNUG has some characteristics that make it an unsuitable long-term holding for most individual investors.
JNUG Stock is a Leveraged ETF (LTEF)
Many investors are aware with a variety of exchange traded funds (ETFs) that allow them to follow the price of a commodity. SPDR Gold Shares (NYSEARCA:GLD) and SPDR Gold MiniShares SPDR Gold MiniShares are two examples (NYSEARCA:GLDM). They’re both up 14% so far this year.
VanEck Vectors Gold Miners ETF (NYSEARCA:GDX) and VanEck Vectors Junior Gold Miners ETF are two investment vehicles that invest in various miners (NYSEARCA:GDXJ). They are up 23 percent and 12 percent, respectively, in 2020.
It’s vital to keep in mind that JNUG is a leveraged exchange traded fund (ETF) (LTEF). JNUG and the Direxion Daily Gold Miners Bull 2X ETF are two of the most popular LTEFs (NYSEARCA:NUGT). The long-term performance of both JNUG and NUGT differs from the performance of the underlying assets due to leverage. NUGT, like JNUG, has lost 55% of its value this year.
To put it another way, whereas GLD, GLDM, GDX, and GDXY have all seen significant gains in 2020, neither JNUG nor NUGT have. Similarly, the index that JNUG follows, MVGDXJ, is up 13% in 2020.
These leveraged exchange-traded funds have not performed as well as ETFs that track the commodity of several gold miners over the last five months.
How Leveraged ETFs Work
A 2X leveraged ETF, such as JNUG, is designed to be 2X leveraged on a daily basis. This 2X long LTEF must buy on days when underlying asset prices rise and sell on days when they fall.
Leverage is created by the use of very complex financial instruments including swaps, futures, and options. The daily resetting involved in JNUG stock, on the other hand, is quite complex, making it unsuitable for long-term investment. Long-term investors are hurt by the compounding effects of everyday returns.
The Direxion Daily Jr. Gold Miners Bear 2X ETF (NYSEARCA: JNUG) is a “bear inverse” ETF that tracks JNUG stock.
Is JNUG currently a good investment?
There are numerous compelling reasons to purchase gold, gold stocks, and gold exchange-traded funds (ETFs) these days. The gold price prognosis in the near term appears to be optimistic. However, there are reasons to believe the JNUG ETF will fall in the medium run.
Furthermore, gold’s price will most likely underperform in the long run. Gold is a terrific medium-term trade right now, but a bad long-term investment. However, even in the medium run, the JNUG ETF is too risky to own.
Gold’s Momentum and the JNUG ETF
By no means do I believe gold prices have reached their all-time high of $1,800 per ounce. Gold prices are rising in general due to concerns about the US government’s large stimulus measures taken this year to strengthen the economy.
The general notion is that the dollar will lose value as the government creates more money out of thin air. That idea makes a lot of sense in theory. In truth, the world has determined that the US dollar is the standard.
As a result, there isn’t always a direct relationship between the total quantity of dollars and the dollar’s value. The value of the dollar is more determined by how much confidence investors have in the US currency around the world.
Fortunately, gold investors may use a template to predict how the precious metal will react to large-scale stimulus programs. The US government spent $1.8 trillion on fiscal stimulus from 2008 to 2012. The government has allocated $3.6 trillion in fiscal economic stimulus so far this year. More is almost certainly on the way.
What is the foundation of JNUG?
The MVIS Global Junior Gold Miners Index, which analyzes the performance of foreign and domestic micro-, small-, and mid-cap gold and silver mining businesses, is linked to the Direxion Daily Junior Gold Miners Index (JNUG). JNUG, on the other hand, adds a layer to the traditional index ETF method by aiming for three times the underlying index’s daily investment outcomes. It accomplishes this by utilizing leverage.
Kinross Gold (6.12 percent), Evolution Mining (5.59 percent), Northern Star Resources (4.91 percent), Pan American (4.27 percent), Gold Fields (4.14 percent), Comp De Minas (4.05 percent), Yamana Gold (3.88 percent), Sibanye Gold (3.39 percent), B2Gold (3.03 percent), and Detour Gold (3.03 percent) are among JNUG’s top holdings (2.87 percent ).
JNUG’s expense ratio is 1.17 percent, and the firm presently manages $935 million in assets.
Is JNUG keeping track of gold?
JNUG offers geared exposure (2x) to the MVIS Worldwide Junior Gold Miners Index, which is a market-cap-weighted index of global gold mining businesses that earn at least 50% of their income from gold or silver mining. JNUG has resumed daily creations as of April 24, 2017.
Why is JNUG dropping so fast?
The long and short of it is that the more volatile the benchmark, the more value is lost over time with leveraged ETFs. This is true even if the benchmark index remains unchanged throughout the year. This is because the benchmark index is likely to have significant up and down swings even in a flat year. Investors can lose 50% of their investment if a leveraged ETF like JNUG moves within 10 points every two days over a period of 60 days.
This is a Gamble, Not an Investment
To be clear, JNUG would not exist if it did not generate revenue for someone. JNUG stock, on the other hand, is a stock that the average investor should avoid.
As I previously stated, more can actually be less with this leveraged ETF. That is why I consider JNUG to be such a risk.
It’s feasible to make a large profit, but regular investors are taking on much too much risk. It is preferable to buy junior mining stocks directly if you wish to invest in them. Kinross Gold Corporation (NYSE:KGC) and B2Gold (NYSEAMERICAN:BTG), for example, are two of the underlying stocks of theMVGDXJ, and are up 34 percent and 35 percent on the year, respectively.
You should be able to sleep better at night if you invest in gold. When you invest in JNUG stock, though, you must remain vigilant and on your toes at all times.
What is the difference between JNUG and JDST?
The MVIS Global Junior Gold Miners Index (MVGDXJTR) tracks the performance of foreign and domestic micro-, small-, and mid-capitalization companies that generate, or demonstrate the potential to generate, at least 50% of their revenues from, or have at least 50% of their assets related to, gold and/or silver mining, hold real estate, or have mining projects that have the potential to produce at least 50% of the company’s revenue from gold and/or silver mining, hold real property, or have mining projects that have An index cannot be purchased directly.
Did JNUG break up in 2020?
A 1-for-10 reverse stock split has been announced for Direxion Daily Junior Gold Miners Index Bull 2X Shares (JNUG). Each JNUG Common Share will be converted into the right to receive 0.10 (New) Direxion Daily Junior Gold Miners Index Bull 2X Shares as a result of the reverse stock split.
