Gold prices inched higher Tuesday, despite conflicting views from Federal Reserve officials. As the U.S. waits for the Fed announcement, traders may consider a bearish or inverse gold exchange traded funds to hedge against a more hawkish outlook.
On Tuesday, the SPDR Gold Shares (NYSEArca: GLD), iShares Gold Trust (NYSEArca: IAU) and ETFS Physical Swiss Gold Shares (NYSEArca: SGOL) were up about 0.7% while Comex gold futures were 0.5% higher to $1,354.8 per ounce.
Gold strengthened after San Francisco Fed President John Williams argued in a paper that central banks might have to raise inflation targets, focus more on growth and back much looser fiscal policies.
However, gold pared gains after New York Fed President William Dudley said a September rate hike “is possible.”
“I don’t think my views have changed very much,” Dudley told Fox Business Network. “I think we’re looking for growth in the second half of the year that’ll be stronger than the first half – so some acceleration in the growth outlook.”
SEE MORE: Record Investment Demand for Gold ETFs
Gold has enjoyed greater demand in a low interest-rate environment as the hard asset becomes more attractive to investors compared to yield-bearing assets. However, traders lose interest in gold when rates rise since the bullion does not produce a yield.
Looking ahead, investors will be waiting on Wednesday’s minutes from the most recent Federal Open Market Committee meeting.
If the FOMC minutes reveal a more hawkish Fed stance with an imminent interest rate hike, gold assets could take a major blow. Consequently, traders may consider short or inverse gold ETF options to hedge against a potential turn.
SEE MORE: How to Prepare for a Possible Gold ETF Pullback
For instance, the ProShares UltraShort Gold (NYSEArca: GLL) provides a two times inverse or -200% daily performance of gold bullion. 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; 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.
Additionally, investors can look to hedge bets against gold miners with bearish options like the Direxion Daily Gold Miners Bear 3X Shares (NYSEArca: DUST), the Direxion Daily Junior Gold Miners Index Bear 3X Shares (NYSEArca: JDST), ProShares UltraShort Gold Miners (NYSEArca: GDXS) and ProShares UltraShort Junior Miners (NYSEArca: GDJS).
For more information on the gold market, visit our gold category.
SPDR Gold Shares