Precious metals commodity-related exchange traded funds plunged Friday, with gold prices falling to their lowest level since last year, as traders switched to cash in response to the escalating trade tensions between the U.S. and China.
On Friday, the SPDR Gold Shares (NYSEArca: GLD) fell 1.9% and the iShares Silver Trust (NYSEArca: SLV) declined 3.9%. SLV also broke below both its short- and long-term trend lines at the 50- and 200-day simple moving average, respectively.
The broad selling follows news that President Donald Trump approved tariffs on $50 billion in Chinese goods, fueling concerns that the intensifying trade spate between Washington D.C. and Beijing will cripple the economy and slow global growth, the Wall Street Journal Reports.
China is the world’s largest consumer of many commodities, including precious metals.
“Tariffs on China could be a game changer for metals markets,” George Gero, managing director at RBC Capital Markets, told the WSJ.
Furthermore, precious metals like gold are being dragged down on expectations of a more hawkish Federal Reserve stance after the central bank hiked its policy rate one-quarter percentage points and stated its intentions to raise rates two more times later this year. In a rising rate environment, non-yielding assets like gold and other commodities grow less appealing, and a stronger U.S. dollar also weighs on foreign demand as well.
Inverse, Bearish Gold ETFs Shine
On the other hand, inverse or bearish ETFs have been shining as traders short the asset.
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 Friday, GLL was up 4.2%, DZZ was up 4.0%, DGZ was up 2.4% and DGLD was up 5.9%.
Similarly, the ProShares UltraShort Silver ETF (NYSEArca: ZSL), which takes the inverse -200% daily performance of silver, and VelocityShares 3x Inverse Silver ETN (NYSEArca: DSLV), which tracks the inverse -300% exposure of silver, were up 8.5% and 11.7%, respectively, on Friday.
For more information on the gold and silver markets, visit our precious metals category.