Gold and mining stocks both went up more than the S&P did last year and a lot of large investors have gotten into both. At the World Economic Forum in Davos Ray Dalio said that “cash is trash” and advocated that investors buy gold not just for a daytrade, but as an investment for the next decade. Few smaller investors though are listening as many of them are actually trying to actively bet against gold and mining stocks through short-selling and dangerous triple ETF’s.
Every week the Commodity Futures Trading Commission puts out its commitment of traders report, which reveals what both large and smaller traders are doing inside the futures market. According to their reports overall this year more small traders have opened up more short contracts than they have long contracts when it comes to gold. Much of this was thanks to the five day trading period that ended on January 14 in which they shorted 4,000 contracts and went long only 1,000.
But more small traders today trade exchange traded funds than futures contracts. One of the best ways to track their activity is to see what they are doing on the popular Robinhood brokerage. It has become a magnet for small traders with accounts worth less than $1,000 and also lists information about the number of accounts with them that have a position in a stock or ETF.
There are two primary triple ETF’s that trade gold stocks. The DIREXION SHARES ET/DAILY JR GOLD MINER BULL 3X ETF (NYSEARCA: JNUG) is triple long fund while the DIREXION SHARES ET/DAILY JR GOLD 3X BEAR ETF (NYSEARCA: JDST) is a triple short. Both are popular with small players who want to leverage up their accounts and on Robinhood right now there are more people that own the short ETF JDST than they do the long fund JNUG!
Here is a screenshot I have taken from a Robinhood account I maintain to monitor this type of thing. See for yourself!
So on Robinhood more people are in the triple bear ETF than the triple bull ETF when it comes to the Direxion funds for gold stocks. Now personally I am not a fan of either of these ETF’s, because all triple ETF’s have very vicious decay factors to them that cause them to lose money over time in a toxic situation for those that hold on to them.
I rather buy individual big cap mining stocks and you can get the big type of moves easier in the right small cap junior and exploration stocks than you can from these triple ETF’s anyway. And generally speaking you want to be on the opposite side of the trade than the stock market small fry is!
Now I think these people are crazy to short, because gold has limited downside from here thanks to where we are in the Federal Reserve monetary cycle. The Fed is not raising rates! In fact it is doing REPO and there are signs of a flat economy with GDP growth for 2019 below expectations and gold trading linked to the action in the bond market.
We are living through the biggest Fed money pump in history! Not even in a recesssion (yet) and a pump this size had to happen… what will happen when a real downturn comes??! https://t.co/u2nbeFI8q0
— Mike Swanson (@tradermike_1999) February 11, 2020
The price of gold is also trading above its 200-day moving average in a stage two bull market. This technical price factor is really the most important one. You do not want to short markets in an uptrend, but short ones below their 200-day moving average.
At the start of this month I did an interview for Ike Iossif to give my thoughts on gold, silver, and the stock market.
-Mike
