Traders Flock to Leveraged Gold Miners ETFs (NUGT, JNUG)

A weaker dollar, a more dovish than expected Federal Reserve and new geopolitical concerns are among the factors lifting gold this year. For example, the SPDR Gold Shares (GLD), the world's largest exchange-traded fund (ETF) backed by physical holdings of gold, is up 9 percent, while the U.S. Dollar Index is lower by 1.2 percent. When gold rallies, there is a fair chance gold miners equities and ETFs will overshoot that rally. That is the case this year as the VanEck Vectors Gold Miners ETF (GDX), the largest gold miners ETF, is up 12.3 percent.

When gold miners stocks soar, it is not surprising to see some traders pile into leveraged ETFs, which is happening right now. Typically, bullish leveraged ETFs are more popular than their non-levergaed bullish equivalents, but few leveraged sector and industry ETFs can rival the Direxion Daily Gold Miners Index Bull 3X Shares (NUGT) in terms of popularity and size. (See also: How the Gold Miners Bull 3X (NUGT) ETF Works.)

NUGT attempts to deliver triple the daily returns of the NYSE Arca Gold Miners Index, the same index tracked by GDX. Think about applying leverage to GDX. It is akin to pouring volatility on top of volatility. GDX has a three-year standard deviation of almost 46 percent, or more than quadruple that of the S&P 500, a trait that is magnified by the likes of NUGT. But that volatility can pay off in the form of sizable intraday gains for NUGT, which likely keeps traders coming back to the ETF. That is exactly what traders are doing now. For the 30 days that ended April 7, NUGT averaged daily inflows of more than $6.8 billion, according to Direxion data.

Over that period, only one of Direxion's leveraged bullish ETFs added more new assets and was more volatile than NUGT. Both honors go to the Direxion Daily Junior Gold Miners Index Bull 3X Shares (JNUG). JNUG, which is highly popular in its own right, attempts to deliver triple daily returns of the MVIS Global Junior Gold Miners Index. Think about volatility as it pertains to JNUG. On their own, small caps and gold miners can be volatile assets. Combined, the volatility increases. JNUG is the triple-leveraged answer to the VanEck Vectors Junior Gold Miners ETF (GDXJ), an ETF with a three-year standard deviation of just over 50 percent. (See also: Top 3 ETFs for Long-Term Investors.)

That is not keeping traders away. Over the past month, traders have added an average of $9.7 million per day to JNUG, according to issuer data. (See also: Top Gold Mining ETFs.)