Where Is the Bottom for Gold ETFs?

In the current economic environment, gold bullion and related exchange traded funds are stuck in a rut, with the precious metal experiencing six-week losing streak and trading around six-year lows.

Over the past six weeks since the October 16 close, the SPDR Gold Shares (NYSEArca: GLD), iShares Gold Trust (NYSEArca: IAU) and ETFS Physical Swiss Gold Shares (NYSEArca: SGOL) have declined 9.6%. The gold ETFs were hovering around their lowest levels since September 2009.

Meanwhile, inverse ETFs that have capitalized on the tarnished bullion prices have surged. Over the past six weeks, the ProShares UltraShort Gold (NYSEArca: GLL), provides a two times inverse or -200% daily performance of gold bullion, rose 24.1%.

Alternatively, ETN options include the DB Gold Double Short ETN (NYSEArca: DZZ), which tries to generate the twice inverse or -200% return of the daily performance of gold, rose 21.8%; DB Gold Short ETN (NYSEArca: DGZ), which tries to reflect the inverse of gold price movements, added 10.4%; and VelocityShares 3x Inverse Gold ETN (NYSEArca: DGLD), which tries to reflect the performance of three times the inverse or -300% daily performance, increased 33.8%.

Comex gold futures were 1.2% lower Friday to $1,057.1 per ounce. Spot gold briefly touched $1,052.5 an ounce early Friday, its lowest since February 2010.

Gold prices have been steadily trending lower as the prospect of a stronger dollar and weakening inflationary pressures make the hard asset less attractive. The ICE Dollar Index, which tracks the USD’s value against a basket of international currencies, was at an eight-month high of 100.2. In the 12 months through October, the core Consumer Price Index rose 1.9%, below the Federal Reserve’s 2.0% target.

“A very strong dollar is very difficult for gold because gold becomes much more expensive in dollar terms than before,” George Gero, a senior vice president with RBC Capital Markets Global Futures, told the Wall Street Journal. “The strong dollar is very anti-inflationary, and that removes the need for gold as an inflation hedge.”