As the U.S. dollar strengthens and bullion prices draw near four-year lows, speculators are have grown more bearish, with some turning to inverse gold-related exchange traded funds.
The physically backed SPDR Gold Shares (NYSEArca: GLD) has declined 3.1% over the past month and is down 8.7% over the last three months. GLD shed over $1.1 billion in assets last month, the ETF’s largest monthly outflow this year. [October was Unkind to Gold ETFs]
COMEX gold futures are now trading around $1,166 per ounce, close to a four-year low, compared to a high of around $1,383 per ounce in March.
Strategists are also growing wary. For instance, Citigroup analysts argue that the ugly chart formations could indicate further bearish price action in gold, reports Chris Dieterich for Barron’s.
“We are betting on lower gold prices and telling our clients that they should have zero allocation in gold,” Atul Lele, chief investment officer at Deltec International Group, said in a Bloomberg article.
Nevertheless, aggressive traders who believe gold will continue to lose its luster can capitalize on the bearish outlook through a number of inverse or short exchange traded note and ETF options.
For example, 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 5.6% and BARS is up 8.7%.
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 6.3%, DGZ is up 3.1% and DGLD is up 8.4%.
Potential investors, though, 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.