A looming hike in U.S. interest rates and a strengthening U.S. economy have diminished gold’s attractiveness to investors, sending many investors flocking to bear gold mining ETFs, according to a Zacks report.
The U.S. Federal Reserve seems prepared to raise interest rates this month, provided inflation continues to rise and the economy keeps gathering strength. Higher interest rates would diminish gold’s attractiveness as an investment, Zacks reported, since gold doesn’t pay interest like fixed-income assets. The U.S. dollar has also strengthened with a jump in oil prices and stabilization of the Chinese economy. A strong dollar means gold isn’t as attractive as a safe haven; on May 30, gold bullion fell below $1,200 per ounce for the first time in more than three months, according to Zacks.
Gold mining took an even bigger hit; the mining space tends to see more losses than bullion in a declining metal market, according to Zacks.
The slump in gold has led to surges in the last few days for a couple of Canadian-dominated bear gold mining ETFs. The Direxion Daily Gold Miners Index Bear 3x Share, which seeks to deliver three times the inverse daily performance of the NYSE Arca Gold Miners Index, spiked 27.2% over 10 days. And the Direxion Daily Junior Gold Miners Index Bear 3x Shares, which seeks to deliver three times the inverse performance of the MVIS Global Junior Gold Miners Index, saw a 31.6% spike in the same timeframe. Both ETFs’ portfolios are dominated by Canadian firms, Zacks reported.
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