The Direxion Daily Junior Gold Miners Index Bull 2X Shares (NYSEArca: JNUG) is one of the best bets if you believe inflation may soon be rearing its ugly head. JNUG stock, which gives investors exposure to gold makes sense, as the barbarous relic is a proven inflation hedge. It is one of your best bets if you really want a leveraged play on a bull market in the yellow metal.
JNUG tracks the daily returns of 200% of the daily performance of the MVIS Global Junior Gold Miners Index, a cap-weighted index that tracks the most liquid junior companies in the global gold and silver mining industry.
To make the cut, a company must get at least 50% of its revenues from gold or silver mining. Canadian miners make up 53% of the index, with Australian minders making up another 22%. Most of the companies making up JNUG’s portfolio are too small to have much name recognition. The largest, Kinross Gold Corporation (NYSE:KGC), has a market cap of just $8 billion.
But this is exactly what makes JNUG interesting as a speculation. Gold miners are a leveraged play on gold itself, and junior miners are a leveraged play on miners. And JNUG is leveraged to offer 200% returns on its underlying index of junior miners. So, think of JNUG stock as a leveraged, leveraged, leveraged play on a rising gold price.
The only reason you’d want to make a bet like that is in you believed that gold was likely to go sharply higher in the near future. And today, we have just the potential catalyst to make that happen.
Rising Inflation and JNUG Stock
According to recent comments by Federal Reserve Chairman Jerome Powell, the Fed “is not even thinking about thinking about raising rates” any time soon, and I believe him. His predecessors kept rates pegged at zero for seven years following the 2008 meltdown, so there’s no reason to expect a quick return to normalcy during the COVID-19 crisis.
Of course, that’s not all the Fed is doing these days. We’re now three months into an unlimited bond-buying program designed to keep the capital markets functioning. The Fed has gobbled up about $3 trillion in assorted bonds since the middle of March, or a little under a trillion per month, and there is no plan to stop any time soon.
Oh, and while we’re at it, I’ll go ahead and throw in that the budget deficit is expected to be in the ballpark of 18% of GDP this year, which is the highest it’s been since World War II. So in addition to the greatest experiment in money printing in modern history, you also have the largest deficits in decades.
Now, I’m not interested in finger-pointing here, but we can’t blame all of this on the pandemic. Our government had an embarrassing spending problem and our economy a dangerous debt addiction long before any of us had ever heard of coronavirus. But when you see numbers like this, there’s really only one conclusion you can reach: inflation is likely coming down the pipe.
Given the demand destruction from the quarantines, it may be months or even a few years before it really shows up at the cash register. But it’s coming, and it’s coming in a big way.
How to Trade JNUG
If inflation rips higher, it’s not at all crazy to expect to make 10 times your money in JNUG over the course of just a couple years. When junior miners move, they really move. And JNUG is a leveraged play on those junior miners.
But don’t bet the farm here. You should only trade JNUG with your more speculative funds, and you shouldn’t use the cash you need for your mortgage payment or baby formula. You should be prepared for wild price swings.
As a case in point, JNUG is down about 90% since the start of 2020. But volatility cuts both ways. Had you bought near this year’s lows, you’d be up over 160%. And had you timed it right and been in JNUG between January 2016 and July 2016, you would have made about 10 times your money. So, when I tell you you can make 10 times your money in this, it’s not hypothetical. JNUG really has generated those kinds of returns in the past.
Again, make sure you’re not betting the farm. Any speculation capable of making your 10 times your money is mostly for your “play money.” But if you believe that inflation or dollar instability is likely in the coming years, drop some of that play money in JNUG.
Charles Lewis Sizemore, CFA is the principal of Sizemore Capital Management. As of this writing, he did not hold a position in any of the aforementioned securities.