Top Picks 2017: Direxion Daily Gold Miners Bear
I assess markets using my 3G investing framework, which evaluates the three most critical forces, or gravities, that impact asset prices: fundamental, quantitative, and behavioral, explains Landon Whaley, editor of The Whaley Report.
As we begin 2017, all three gravities are decidedly bearish for gold; this indicates that gold is one of the best short opportunities of the next year.
For a leveraged play on gold, consider being short gold miners. The Direxion Daily Gold Miners Index Bear 3X Shares ETF (DUST) will be one of the best-performing equity ETFs in 2017.
Fundamentally, there is no worse environment for gold than the current trajectory of both U.S. growth and the Fed’s monetary policy.
The Fed has just hiked rates for the second time in 12 months and has officially begun the rate-normalizing process.
On the growth front, after slowing for five consecutive quarters, the U.S. economy is starting to pick up steam. That is a bearish fundamental one-two punch for gold.
Quantitatively, the U.S. dollar has cracked the critical $100 level, and U.S. yields have jackknifed straight up since Trump’s victory.
Gold simply can’t compete with the combo platter of a strong USD and higher U.S. yields.
In fact, this type of entrée produces gold’s worst performing time periods: the last time the U.S. dollar and yields moved higher in tandem was September 2012 through March 2014, and gold lost almost 28%.
Behaviorally, speculators still maintain long exposure to gold that is well above historic norms, and the number of long futures contracts is still outpacing the number of shorts.
This positioning tells me that bullish gold investors have yet to figure out that the recent decline in gold isn’t a buying opportunity, but rather the beginning of a much larger move lower.
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