Gold exchange traded products such as the SPDR Gold Shares (NYSEArca: GLD), iShares Gold Trust (NYSEArca: IAU) and ETFS Physical Swiss Gold Shares (NYSEArca: SGOL) are trouncing the returns offered by equities and fixed income ETFs this year.
So it can be said that, despite gold’s many critics, betting against the yellow metal to this point in 2016 has been a losing bet. While most forecasts indicate gold can trade higher this year, that does not mean the yellow will move higher in a straight line. There could be opportunities for risk-tolerant traders to exploit quick down moves in gold with inverse ETFs.
SEE MORE: A Very Positive Forecast for Gold ETFs
Traders looking to hedge against gold downside can consider ETFs such as the ProShares UltraShort Gold ETF (NYSEArca: GLL) or the Powershares DB Gold Double Short ETN (NYSEArca: DZZ). An inverse though not leveraged option is the Powershares DB Gold Short ETN (NYSEArca: DGZ).
However, caution is warranted with any bearish play on gold because fundamentals, including robust investor demand as highlighted by inflows to ETFs such as GLD, is supportive of more upside for bullion.[related_stories]
Fueling the gold bet, the global zero or negative interest rate policies have pushed investors toward the hard asset as a better store of wealth, with demand surging to the second-highest level ever in the first quarter, according to the World Gold Council. Moreover, lingering global volatility has also helped support gold as a safe-haven asset.
Adventurous traders willing to make a short-term bearish be on gold can consider the triple-leveraged VelocityShares 3x Inverse Gold ETN (NYSEArca: DGLD).
“Gold will pull back at some point. When exactly that will be is unknown, but when it occurs it is likely to present a major buying opportunity based on historical trends that have occurred in gold. Waiting for a pullback provides a lower entry point into gold ETFs, compared to current prices. This improves the risk/reward of the trades, but could potentially mean missing a trade or entry point if gold (and related ETFs) don’t pull back as far as expected,” according to Investopedia.
Some analysts still believe that is possible gold ascends to $1,500 per troy ounce. Gold bullion prices have surged almost 20% this year as the Fed previously signaled it would slow the pace of interest rate normalization this year – higher interest rates typically weigh on gold prices since the hard asset provide no yield and would become less attractive to higher-yielding conservative debt assets in a rising rate environment.
For more information on the gold market, visit our gold category.
Powershares DB Gold Double Short ETN
Tom Lydon’s clients own shares of GLD.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.