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I Just Bought JNUG Before the FOMC – Here’s Why

The Direxion Daily Jr Gold Miners Bull 3X Shares (NYSEARCA:JNUG) is not for the faint of heart. JNUG is a leveraged ETF, meaning it attempts to return three times the movement of normal sector funds. The gold fund is also focused on junior miners — the smaller and more volatile players in the space.

Direxion Shares Exchange Traded Fund Trust(NYSEARCA:JNUG)

But ahead of the Federal Open Market Committee (FOMC) meeting on Sept. 20-21, gold miners have been fading fast. That doesn’t make a lot of sense to me, and I expect a quick pop in both gold and gold miner stocks next week.

So I decided to take the tiger by the tail and just snapped up 250 shares of JNUG at $17.43.

Why JNUG is a Buy Before the Fed Meeting

I didn’t buy other gold investments like the SPDR Gold Trust (ETF) (NYSEARCA:GLD), the iShares Gold Trust (ETF) (NYSEARCA:IAU) or the ETFS Physical Swiss Gold Shares ETF (NYSEARCA:SGOL) despite the fact they are much larger, with $40 billion, $10 billion and $1 billion in assets each, and are direct plays on physical gold.

That’s because I don’t think this is a gold play as much as a miners play.

In the past month, gold bullion prices are down by 2% while many miners have declined much more. Goldcorp Inc. (USA) (NYSE:GG) is down 16% in the last 30 days, and Barrick Gold Corporation (USA) (NYSE:ABX) is off by almost 20%. It just doesn’t make sense that the miners would suffer that much more pain despite firm pricing for the very commodity they pull out of the ground.

I also happen to like junior miners more, precisely because these smaller gold players are more volatile — both to the downside, and to the upside. Consider that Yamana Gold Inc. (USA) (NYSE:AUY) and Kinross Gold Corporation (USA) (NYSE:KGC), both companies valued at under $5 billion, are off more than 20% in the past 30 days.

Again, gold is only down about 2% or so in that same period. That’s a disparity that simply should not exist.

So, I expect the market to resolve itself — and junior gold miners to see the biggest pop. That’s why I’m banking on a 3x leveraged gold ETF like JNUG to get me there. The Direxion Daily Gold Miners Bull 3X Shares (NYSEARCA:NUGT) is also OK if you prefer bigger miners, or funds like the the ProShares Ultra Gold (ETF) (NYSEARCA:UGL) if you want to play bullion directly and want 2x instead of 3x leverage.

But hey … if you’re gonna be a bear on this trade, be a grizzly.

What Could Go Wrong With This Gold Trade?

In short, a lot can go wrong with a risky trade like this. Gold could crash — or, as we’ve seen, gold could just drift slightly lower and the miners themselves could crash and send JNUG lower in a hurry.

But I don’t think that’s going to happen. Yes, the CME Fed Watch tool indicates there’s a chance of a rate increase … but the probability of rates staying in the current range is 88%. I’ll take that bet.

It’s an election year, for Pete’s sake, and I just don’t think there will be a big policy change months before the vote. And for all those people talking about the inevitability of a rate hike, we saw a lot of similar hype in September 2015 come to naught.

Look, this is not a sure thing. It could blow up in my face. But already, less than an hour after my purchase, JNUG is up over 3% from it’s early morning lows when I bought.

Hey, what could go wrong?

Don’t worry, I’m sure to tell you next week, after the fact …

Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP. As of this writing, he was long JNUG.


Article printed from InvestorPlace Media, https://investorplace.com/2016/09/jnug-fomc-gold-miners-etf/.

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