Gold prices today are trending higher yet again, approaching their recent highs. In early July, gold prices hit their highest level in more than two years, reaching around $1,400 in early July after Brexit fears drove investors to the precious metal.
Sure, that’s still off over 25% from 2011’s highs for gold prices during the European debt crisis. The S&P 500 Index, meanwhile, is up almost 70% in the same period.
However, it’s undeniable that the current risk-off environment is sparking a huge rally in gold and gold ETFs. The precious metal is up over 25% year-to-date, as are gold ETFs SPDR Gold Trust (ETF) (NYSEARCA:GLD) and iShares Gold Trust(ETF) (NYSEARCA:IAU).
And many gold investments are up even more including:
- Market Vectors Gold Miners ETF (NYSEARCA:GDX), up 125% since Jan. 1.
- Market Vectors Junior Gold Miners ETF (NYSEARCA:GDXJ), up 165% since Jan. 1.
- The 3X leveraged Direxion Shares Exchange Traded Fund Trust (NYSEARCA:JNUG) is up a stunning 887% since Jan. 1.
And they aren’t done yet.
Gold Prices Trending Higher
Click to Enlarge A look at the charts shows a move higher may be very likely. The 3X leveraged Direxion Daily Gold Miners Index (NYSEARCA:NUGT) gold ETF just erupted through resistance at $167 (chart courtesy of All In Capital), a sign suggested all gold-related assets could climb much higher in the short-term.
It’s easy to see why. The U.S. is facing anemic GDP growth in 2016, with growth at just a 1.2% pace in Q2. Western economies outside America are also in trouble, with the Brexit continuing to cloud Europe in uncertainty and Japan continuing its long struggle against deflation and a slowdown driven by demographics. As for emerging markets, we’ve seen nations like Brazil and China show signs of hope, but there is assuredly a lot of uncertainty and volatility to come.
In times like these, the “risk off” trade of course has always been gold. And gold investments, unsurprisingly, continue to flourish.
But it’s worth remembering the 2011 peak for gold that was short-lived. The reality is that, to paraphrase Warren Buffett, gold doesn’t pay a dividend and doesn’t have any real use in the global economy (no, specialized electronics don’t count).
This rally is nice while it lasts, but be prepared to adjust your holdings in a hurry when things change — particularly if you own the 3X Direxion Shares Exchange Traded Fund Trust.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. Write him at firstname.lastname@example.org or follow him on Twitter via @JeffReevesIP. As of this writing, he did not hold a position in any of the aforementioned securities.