JNUG Vs NUGT: Which Gold Mining ETF Is Best?

Tangible assets such as gold and silver as a replacement for, or a supplement to, investments in stocks and bonds. Precious metals like gold are often a safe haven when confidence in markets or even governments sometimes diminish.

For those who don’t want to invest directly in precious metals, the idea of gold mining ETFs may be a happy medium between gold and stocks.

Two of the most popular gold miners ETFs are JNUG [NYSEArca: JNUG] and NUGT [NYSEArca: NUGT]. But when you compare JNUG vs NUGT, which is the better investment opportunity?

Why Invest In Gold Miners ETFs?

Gold has been an attractive investment vehicle for centuries, well before the founding of the first stock exchange. The common reasons for investing in gold include:

  • As a physical commodity, gold represents insurance against the inflation of fiat currencies. Gold bullion will likely retain its value in the event of a major economic depression or catastrophe.
  • Investing in gold is simpler than buying into other tangible assets, such as real estate, which requires a good deal of specialist know-how.
  • Gold is a tangible asset that can be stored in a physical location, which provides psychological satisfaction to many investors.
  • Gold can act as a hedge against government mis-management – when confidence in public markets fails, gold often spikes in value.

Although not directly linked to the price of gold, the fates of gold mining ETFs (exchange-traded funds) typically correlate with gold prices.

Gold mining ETFs allow shareholders to invest in many different companies in the gold mining and gold production industries. This lowers the possible risk from investing in only a small number of gold mining companies.

What Is JNUG?

JNUG [NYSEArca: JNUG] – Direxion Daily Junior Gold Miners Index Bull 3X Shares – is a gold mining ETF that was created in October 2013. This ETF consists of junior gold and silver companies that operate in both developed and emerging markets.

The goal of JNUG [NYSEArca: JNUG] is to deliver daily returns that are three times as high as the MVIS Global Junior Gold Miners Index.

Both small cap companies and gold prices are commonly more volatile than the average investment; with both factors taken into consideration, JNUG is a highly volatile and speculative security.

The JNUG ETF has a year-to-date return of 27 percent. However, it is down by 17.9 percent from July 2018.

Investing In NUGT

Like JNUG, NUGT [NYSEArca: NUGT] – Direxion Daily Gold Miners Index Bull 3X Shares – is one of the most popular gold miners ETFs.

Also like JNUG, NUGT [NYSEArca: NUGT] has the goal of seeking daily returns that are three times as high as another index: in this case, the NYSE Arca Gold Miners Index. This makes NUGT, like JNUG, a highly volatile security.

Many traders are attracted to NUGT thanks to the potential for significant intraday gains.

However, NUGT has much higher trading volume than JNUG does. NUGT has an average daily inflow of $6.8 billion, while JNUG has an average daily inflow of $9.7 million – three orders of magnitude apart.

JNUG Vs NUGT: Which is a Better Investment?

Both JNUG and NUGT are leveraged ETFs that are financial derivatives of other financial derivatives, which can make investing in them a risky game to play.

Decay risk is present with leveraged ETFs, which means that most investors in NUGT and JNUG will choose to day trade these commodities. However, day trading is often a dangerous, high-risk endeavor for less experienced investors.

Entities such as dark pools and high-frequency trading (HFT) programs are capable of instantaneously leveraging their competitive advantages, leaving only the scraps for human day traders.

What’s more, NUGT and JNUG have the goal of tripling the daily return of the financial derivative beneath them. This means that any changes in the price of the ETF will be even more drastic for NUGT and JNUG. For example, if the ETF on which JNUG is based drops by 5 percent in a single day, JNUG will itself see a drop of 15 percent.

Direxion, the provider of the NUGT and JNUG ETFs, says as much explicitly on its website: “The funds should not be expected to provide three times or negative three times the return of the benchmark’s cumulative return for periods greater than a day.”

NUGT Vs JNUG: The Bottom Line

It’s important for investors not to be fooled by “get rich quick” promises when it comes to JNUG and NUGT.

Both of these ETFs are best suited for day trading purposes, with a full acknowledgment of the potential risks. With these risks acknowledged, investors should also realize that holding a leveraged ETF such as NUGT or JNUG on a longer time scale is not a wise choice, due to the detrimental effects of decay.

As for the question of NUGT vs. JNUG, the main differentiator between them is the size of the companies that they contain. JNUG is for “junior” small cap gold mining companies, while NUGT is for more established, mature gold mining companies.

If you want to invest in gold mining ETFs and are deciding between NUGT and JNUG, the ultimate decision will come down to whether you want to invest in large or small gold mining firms.

Thanks to the presence of small cap companies, JNUG is even more volatile than NUGT, which may be good or bad depending on your investment strategy.

The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.