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Does Gold’s Price Have Support at $1100?



Gold retreats while mining ETFs surge

As precious metals saw another down-day on Wednesday, September 30, 2015, most mining ETFs buoyed the carnage. Leveraged ETFs such as the Direxion Daily Gold Miners ETF (NUGT) and the Direxion Daily Junior Gold Miners Bull 3X ETF (JNUG) gained 6.6% and 5%, respectively. However, these two leveraged ETFs have lost a whopping 74% and 69%, respectively, on a YTD (year-to-date) basis.

Gold has fallen for six out of the last ten trading days, and volatility has also seen a fall compared to the previous week. The current implied volatility was trading close to the average ten-day volatility. Gold futures were trading at $1115.20 per ounce on Wednesday, touching the $1100 support level.

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Glencore fallout

Major news gripping the commodities market is the result of the Glencore fallout. A high commodity sell-off is likely taking place. It appears that the key selling began as carnage in the massive commodity group Glencore began to materialize.

Glencore’s CDS (Credit Default Swap) is now above 700bps (basis points), up 154bps, and stocks are down almost 30% as of September 28. A CDS (Credit Default Swap) is a credit derivative instrument used to transfer the credit exposure of the fixed income product of a party. A rise in CDS likely signals rising risk against a party’s payments.

Though mining companies have been significantly affected by the downfall in precious metals prices, most saw their share prices rise on September 30. Stocks like First Majestic Silver (AG), Hecla Mining (HL), Alamos Gold (AGI), and Kinross Gold (KGC) saw their share prices rise. These four stocks together make up 6.6% of the market Vectors Gold Miners ETF (GDX).


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