Fed Rate Hike Pulls Rug from Under Gold ETFs

Gold prices and commodity-related exchange traded funds retreated to a 10-month low after traders shunned the hard asset on prospects for further interest-rate hikes next year in the wake of the Federal Open Market Committee’s decision.

On Thursday, the SPDR Gold Shares (NYSEArca: GLD), iShares Gold Trust (NYSEArca: IAU) and ETFS Physical Swiss Gold Shares (NYSEArca: SGOL) dropped 1.0% as Comex gold futures declined 2.9% to $1,129.9 per ounce. Over the past three months, the gold ETFs have decreased about 13.7%.

On the other hand, inverse or bearish gold and gold miner ETFs have been shining as traders short the asset class.

For example, 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. On Thursday, GLL was up 2.1%, DZZ was up 2.2%, DGZ was up 1.4% and DGLD was up 3.8%.

Investors bet 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) and ProShares UltraShort Gold Miners (NYSEArca: GDXS). The Direxion options take the -300% exposure to large miners and junior miners, respectively, while the ProShares option take the -200% exposure to large miners and junior miners, respectively. On Thursday, Dust was up 13.4%, was up 14.4% and was up 9.1%. The inverse gold miner ETFs also broke back above their long-term, 200-day simple moving averages.

Gold is losing its luster after the Fed raised the federal funds target rate by a quarter percentage point on Wednesday to between 0.50% and 0.75%. While many anticipate the Fed to hike rates in December, officials unexpectedly revealed plans to hike rates three more times in 2017.

“At this point, I don’t see what’s going to make gold go higher,” Bob Haberkorn, senior market strategist at RJO Futures, told the Wall Street Journal. “The story this entire year has always turned back to the Fed.”