Why I’m Long Gold Miners Here: My NUGT Q3 Trade

I opened a new position in NUGT at $112.99, buying 100 shares for a total position of $11,299. This is a trade I plan to track on Bryan’s.blog through the end of Q3, updating the thesis as the miners, gold and broader macro environment evolve.

The important distinction is that I’m not making a straight bullish bet on gold.

Gold has already had an enormous run. Earlier this year it traded above $5,300 an ounce before suffering a substantial correction, and on July 23 front-month futures dropped another 2.4% to roughly $4,046. That volatility tells me the metals trade itself remains unsettled. 

But the miners are starting to look different.

The miners may be pricing in too much pain

Gold-mining companies have leverage of their own. Once the gold price moves comfortably above the cost of extracting an ounce, additional revenue can have an outsized effect on margins and free cash flow.

Newmont’s latest quarter provides a good example. The company realized an average gold price of $4,414 per ounce while reporting all-in sustaining costs of about $1,621 per ounce. Newmont generated a record $2.2 billion of quarterly free cash flow even though production declined year over year. 

That is the part of the setup that interests me.

Gold does not necessarily need to immediately reclaim its highs. If it simply stabilizes at historically elevated prices, well-run miners can continue producing significant cash flow. Meanwhile, the violent correction across mining equities has reset expectations.

NUGT itself illustrates just how severe that reset has been. Direxion reported the ETF down roughly 36% year-to-date and 38% over three months as of July 21, despite still being up substantially over the prior year. 

That is the dislocation I’m attempting to trade.

Why NUGT

NUGT provides 2x the daily performance of the MarketVector Global Gold Miners Index. It is not a direct gold ETF, and importantly, the 2x objective applies to daily returns, not the cumulative return over weeks or months. Volatility and daily resetting can cause performance to diverge significantly over longer holding periods. 

That makes this considerably more aggressive than simply owning GDX or individual miners.

My entry:

NUGT: 100 shares
Entry: $112.99
Initial capital: $11,299

The position is essentially a bet that pessimism surrounding the miners has moved faster than the deterioration in their underlying economics.

I don’t need gold at $6,000 for that thesis to work.

I need gold to remain high enough for miners to keep generating strong margins while investors gradually reconsider what those earnings streams are worth.

The Q3 experiment

This will be a live trade rather than a one-and-done article.

Between now and the end of Q3, I’ll update the position as earnings arrive, gold moves, monetary expectations change and the miners either confirm or invalidate the thesis.

For now, I’m long the miners.

Not because metals have to explode higher.

Because the miners may already be priced as though they won’t.