JNUG: Turbocharging Junior Gold Miners Makes Timing Critical

seekingalpha08-14

Gold rally since 1999 has seen significant growth, with December COMEX futures reaching $2,537.70 in July 2024.GDXJ is a junior gold mining ETF with over $5 billion in assets under management, ...

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Gold (XAUUSD:CUR) fell to $252.50 per ounce and has made higher lows and higher highs over the past twenty-five years. On July 17, 2024, COMEX gold futures for December delivery reached a $2,537.70 high, over ten times the 1999 low. Gold has been a tenbagger, but the rally has not been parabolic. The price ascent has been slow and steady, with each significant periodic correction a golden buying opportunity. Gold miners who extract the metal from the earth's crust work overtime to satisfy the rising demand. The VanEck Junior Gold Miners ETF (GDXJ) product holds a portfolio of junior gold mining companies that explore and produce the metal. Junior miners are more speculative than the senior, established gold mining companies. The Direxion Daily Junior Gold Miners Index Bull 2X Shares ETF (NYSEARCA:JNUG) turbocharged the price action in the GDXJ through leverage. Leverage can enhance upside returns, but the potential for greater rewards comes with increased risk. JNUG and other leveraged ETF products are only appropriate for short-term risk positions, as they experience price erosion when prices move contrary to expectations or remain stable. JNUG requires careful attention to risk-reward dynamics and requires price and time stops for success. The bull market in gold continues Even the most aggressive bull markets rarely move in straight lines, but the gold bull that has been firmly intact since 1999 is a textbook example of a raging bull. Long-Term COMEX Gold Futures Chart (Barchart) The chart highlights gold's ascent from the 1999 $252.50 per ounce low to the most recent August 2024 continuous high at over $2,500. The December COMEX futures contract rose to $2,537.70 in mid-July, creating a ten-bagger return in the leading precious metal over the past quarter of a century. Higher gold prices have caused mining companies to increase exploration for reserves. The higher gold prices rise, the more attractive gold mining companies are as the profit potential increases. GDXJ is the junior gold mining ETF product The fund profile for the VanEck Junior Gold Miners ETF product states: Fund Profile for the GDXJ ETF Product (Seeking Alpha) At $44.78 per share, GDXJ is a highly liquid ETF with over $5 billion in assets under management. GDXJ trades an average of over 4.64 million shares daily and charges a 0.52% management fee. The $0.27 dividend translates to a 0.60% yield. December COMEX gold's latest rally took the price 7.96% higher from $2,350.50 on June 26 to $2,537.70 per ounce on July 17. Six-Month Chart of the GDXJ ETF Product (Seeking Alpha) Over the same period, GDXJ rallied 19.4% from $41.14 to $49.13 per share. Junior mining companies often provide leverage to the gold price during rallies, as mining profits can be exponential compared to the underlying commodity. JNUG turbocharges GDXJ The fund summary for the leveraged Direxion Daily Junior Gold Miners Index Bull 2X Shares states: Fund Profile for the JNUG Leveraged ETF Product (Seeking Alpha) At $40.99 per share, JNUG had $300.7 million in assets under management. JNUG trades an average of nearly 1.070 million shares daily and charges a 1.15% management fee. The $0.81 dividend translates to a 1.98% yield. Still, the leveraged ETF is inappropriate for passive investors or market participants seeking dividends, as time decay erodes its value when the gold and GDXJ move lower. Please fully review and understand the special risks of leveraged ETFs before placing any trades. However, GDXJ can turbocharge returns during gold and GDXJ rallies. During the June 26 through July 17, 2024, period when GDXJ moved 19.4% higher, JNUG offered a leveraged return. Si-Month Chart of the Leveraged JNUG ETF Product (Barchart) JNUG moved 41.05% higher from $35.52 to $50.10 per share over the period. Seeking Alpha ETF grades highlight the risks JNUG's Seeking Alpha ETF Grades are: JNUG Seeking Alpha ETF Grades (Seeking Alpha) The chart shows that the gold rally assigns the highest momentum grade of A+. JNUG's 1.15% expense ratio makes it expensive compared to GDXJ and other ETF products. Dividends are not the reason for considering JNUG; therefore, the C- grade is appropriate. JNUG's leverage creates significant risk, earning it a steady D- grade. Meanwhile, the assets under management and daily trading volume create significant liquidity, earning JNUG an A+. Time and price stops are critical when trading with JNUG In any market, the potential for oversized rewards comes with increased risks. As the long-term JNUG chart shows, leverage is not for the faint of heart. Long-Term JNUG Chart (Barchart) While gold has made higher highs over the past years, JNUG's leverage and time decay have destroyed the ETF's value. JNUG Stock Split History (Seeking Alpha) As the chart illustrates, a series of value-destroying reverse splits have caused the share price erosion. While JNUG is inappropriate for any long-term gold or gold mining share investor, it can be a valuable short-term trading tool. Any long position in JNUG requires price and time stops to protect capital. Moreover, traders must adjust risk levels to reflect current, not original, execution price levels.  The long-term trend validates that continuing gold's bull market does not guarantee favorable results with JNUG. However, the leveraged ETF can be an explosive tool for short-term traders who keep their fingers on the pulse of the gold and junior gold mining shares.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.1","shortVersion":"4.29.1","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2459138547"}