I day trade commodity ETFs, specifically oil (uso, uco), and gold (NUGT). What's the story with these miners' ETFs? The oil ETFs are exact replicas of the front month /CL contract. The miners ETF may or may not jibe with the front month /GC contract. Sometimes the miners lead the futures, sometimes the futures lead the miners, and sometimes there is very strange diversity, where it seems like the ETF and the underlying are not even connected. What is the relationship between NUGT and /GC? I understand there will be slippage (just like any ETF), but sometimes (rarely) the gold futures contract and the miners ETF are completely out of sync... What am I missing? Thank you.
Maybe I can answer my own question... NUGT is a 3x bullish ETF. Therefore I would expect /GC moves to the upside to have greater weight in NUGT then /GC moves to the downside. Kind of the same reasons why if I wanted to short oil, I would short USO or UCO, not UWTI... It still doesnt explain why futures and the miners ETF are so out of wack sometimes. There are times that the gold contract is soaring to the upside at the open, meanwhile NUGT opens gapped down, and starts to fall? what the deuce?
Sometimes a gift... most times a curse. Very difficult for any arb plays with the ETF and the futures contract.
Seems too sporadic to me. Sometimes one leads the other, sometimes both march to the beat of their own drums. I've seem them go into the close with disparity.
If you want to trade an ETF that mirrors the Gold futures then use the GLD or it's variations because they were constructed to reflect the price of Gold. The the Miners GDX, GDXJ ect are composed of a basket of stocks of precious metal exploration and mining companies and while their price roughly follows gold there are other influences that affect their price: economies of the business like cost of production, finances, geopolitical risks, quality of management etc etc. The miners for that reason are not a pure Gold play. This of course sets off all kinds of arb opportunities. The people on the Traders-Talk Gold Board follow the miners closely in case you were interested. Let me ask you: to trade an oil ETF that follows WTI Crude would you trade the oil exploration and drilling ETF XOP or USO? Regards, GC
Well said regarding GLD/GDX/GDXJ. Regarding XOP and USO, after receiving a K-1 statement to my surprise for USO, I'll never trade it again, as it was a hassle during tax time, EVEN for IRA account! It's a master limited partnership, and they don't care even if you trade it in an IRA, you still have to report the damn gain. There is a master limited partnership called Alarien (AMLP) that won't send you the K-1, but it's not as volatile as XOP or USO. Of course, if you're trading within a prop account then it's the firm's master account so you won't have to worry about getting a separate K-1 for that stock. Also, I don't think you will get the K-1 if you trade options on USO, only the equity. If you want to trade crude, then look at XLE (energy) and OIH (oil services/drillers).