To The Moon

Last Friday, GDXU jumped 5.51%.

So, what drove this sharp move?

1.Gold itself resumed its rally.

On August 14, spot gold rose about 0.7% to around $4,380 per ounce, while gold futures gained roughly 0.4%. This means the move was not unique to GDXU. It followed the normal transmission mechanism:

Gold → Gold miners → 3x leveraged GDXU

2.A weaker US dollar was one of the most direct catalysts.

The US Dollar Index fell about 0.28% to 99.65. US retail sales unexpectedly declined, while inflation data did not show renewed acceleration, prompting markets to reduce expectations for a September Fed rate hike. A weaker dollar is generally supportive for dollar-denominated gold.

3.Markets lowered the probability of a September Fed rate hike.

Market-implied odds of a September rate increase fell from around 55% the previous week to roughly 33%. Lower interest-rate expectations are positive for gold, which does not generate interest income. Gold miners therefore benefited from both higher gold prices and improved valuation expectations.

4.Gold miners themselves provide operating leverage to gold prices.

A 1% rise in gold does not necessarily translate into only a 1% increase in miners’ profits.

For example, assume a miner has an all-in production cost of $3,000 per ounce. If gold rises from $4,300 to $4,400, the gold price increases by only about 2.3%, but profit per ounce rises from $1,300 to $1,400—an increase of roughly 7.7%.

This is why we can often see a transmission like:

Gold +0.7% → GDX +1.9% → GDXU +5% to +6%

Overall, I believe the current move in gold is part of a relatively extended upward cycle rather than a short-lived rebound. From this perspective, I remain bullish on the sector and believe this pullback-and-rally phase offers an opportunity to increase exposure to gold and gold-mining assets.