The bull market for gold is alive and well. After rallying from a March 2020 low of $1,450 to $1,705, gold could rally as high as $3,000 an ounce. In fact, that’s Bank of America’s new 18-month price target. That’s great news for ETFs such as Direxion Daily Junior Gold Miners Index Bull 2x Shares (NYSEARCA:JNUG) stock.
As JNUG just begins to rally from a 52-week low of $33.10, I believe the ETF has the potential to refill its bearish gap around $240 with plenty of patience.
JNUG is a Solid Bet on $3,000 Gold
JNUG tracks the MVIS Global Junior Gold Miners Index, and seeks a 200% or -200%, (or 2x the return of the benchmark in a single day). It also holds gold heavyweights like Kinross Gold (NASDAQ:KGC), Gold Fields (NYSE:GFI), Yamana Gold (NYSE:AUY), and B2Gold (NYSEMKT:BTG).
Granted, some analysts say JNUG stock isn’t the safest way to trade rising gold. For example, InvestorPlace contributor Ian Bezek noted, “During the market crash in March, junior gold mining stocks got pummeled. Throw 300% leverage on top of that, and the junior gold miner ETF had an absolute bloodbath.”
However, in times of excessive chaos, JNUG has also been an explosive opportunity. For example, as the coronavirus was making life “fun,” JNUG jumped from a February low of $672 to a high of nearly $1,043. Shortly thereafter, the ETF crashed as investors pushed into cash and bonds, thinking the world was coming to an end.
These days, JNUG stock is just beginning to rebound higher with further tension ahead.
Not only are central banks flooding the economy with liquidity, there are new tensions with China and North Korea. There’s chaos in the streets of the U.S. And presidential elections are quickly nearing, adding to the uncertainty in the markets.
Combined, it’s the perfect storm for higher gold prices.
There’s Also No Shortage of Bullish Analysts
Elliott Management’s Paul Singer says gold is “one of the most undervalued” assets available and that its fair value is “multiples of its current price.”
UBS Investment Bank’s analyst Tovi Teves says gold has “growing potential” to break $1,800 per ounce, as “investor interest continues to grow in this environment of uncertainty and negative interest rate.”
Billionaire Thomas Kaplan, chairman and chief investment officer of Electrum Group says, “I do believe gold embarks on the next leg of its bull market and goes past $1,900 and ultimately $3,000 to $5,000, if not a lot higher, depending on macro circumstances that today seem dim but I can’t really quantify.”
Helping, central banks around the world have turned on the spigot for endless money printing.
Better, there are no signs the central banks will turn it off.
That’s because, “the global economic recovery will still require further aid and gold prices should still be supported over the medium-term,” wrote Edward Moya, senior market analyst at Oanda, as quoted by MarketWatch.
Even the Federal Reserve is forcing gold higher, as it pumps trillions of dollars of liquidity into uncertain markets. They even dropped the federal funds rate to a range of 0% to 0.25%. Fiat currencies are coming under pressure, forcing gold higher, as well.
The Bottom Line on JNUG Stock
While the JNUG isn’t one of the safest long-term bets on gold prices, it’s a solid bet when there are fears about the stability of the U.S. economy.
With central banks flooding the world economy with liquidity to keep it afloat, tensions with China and North Korea, and a good deal of uncertainty with elections nearing, I believe JNUG could refill its bearish gap at $240, near-term.
Ian Cooper, a contributor to InvestorPlace.com, has been analyzing stocks and options for web-based advisories since 1999. As of this writing, Ian Cooper did not hold a position in any of the aforementioned securities.