Gold bullion and related exchange traded funds are under pressure as a stronger U.S. dollar makes purchases more expensive and demand dips overseas.
The SPDR Gold Shares (NYSEArca: GLD) has declined 1.8% over the past month but is still up 5.2% year-to-date.
COMEX gold futures are currently trading around $1,266.8 per ounce.
Bullion prices have been dipping as the U.S. dollar index rises to a near 14-month high, with the euro currency crossing below the psychological $1.3 level Thursday. Gold becomes more expensive for foreign investors as the USD strengthens.
“Since gold is a dollar-denominated commodity, as the dollar goes up, gold gets more expensive for non-U.S. dollar purchasers,” Erin Gibbs, equity chief investment officer at S&P Capital IQ Global Markets Intelligence, said on Yahoo! Finance.
Gibbs argues that the U.S. dollar will continue to appreciate, especially after the European Central Bank announced additional rate cuts and contemplates quantitative easing.
The PowerShares DB U.S. Dollar Index Bullish Fund (NYSEArca: UUP) has increased 1.7% over the past month and is up 2.6% year-to-date. [King Dollar’s Royal Ascent Lifts These ETFs]
“Our target at the end of this year is $1,050, really driven by the view that we think that the Fed will ultimately be the dominate force here and put more downward pressure [on prices],” Jeffrey Currie, head of commodities research at Goldman Sachs, said on CNBC, recommending traders should now short bullion.
Traders who believe gold will continue to dull can consider a number of inverse or short exchange traded note and ETF options.
For instance, the ProShares UltraShort Gold (NYSEArca: GLL) provides a two times inverse, or -200%, daily performance of gold bullion. The Direxion Daily Gold Bear 3X Shares (NYSEArca: BARS) reflects the daily -300% daily performance of gold. Over the past month, GLL is up 3.1% and BARS is up 3.5%.
Alternatively, ETN options include the PowerShares DB Gold Double Short ETN (NYSEArca: DZZ), which tries to generate the twice inverse, or -200%, return of the daily performance of gold, PowerShares DB Gold Short ETN (NYSEArca: DGZ), which tries to reflect the inverse of gold price movements, and VelocityShares 3x Inverse Gold ETN (NYSEArca: DGLD), which tries to reflect the performance of three times the inverse, or -300%, daily performance. Over the past month, DZZ is up 3.7%, DGZ is up 1.8% and DGLD is up 5.0%.
Potential investors should keep in mind that inverse and leveraged exchange traded products may not perfectly reflect their intended target strategies over the long-term due to daily rebalances and compounding issues.
For more information on the gold market, visit our gold category.