Christian Magoon: Time to Short Gold Prices (NYSEARCA:GLD)? With gold prices on the decline, many investors are beginning to short gold as a way to profit from this trend. Over the last month a variety of short gold products have produced double digit returns. Here’s a snapshot of the performance grid from GoldETFs.biz sorted by four week performance.
Short Gold ETF & ETN Overview
There are five short gold products in the exchange trade fund (ETF) and exchange traded note (ETN) space to consider. These products trade like stocks and have an investment objective of gaining when gold or gold related investments (like gold stocks) decline. To begin, here’s a list of all the ETF and ETN products available in the United States that seek to gain on gold’s decline.
Understand Leverage & Asset Being Tracked
Several products seek to produced leveraged returns (2x or 3X). For example, the Direxion Daily Gold Miners Bear 3X Shares (NYSEARCA:DUST) seeks to deliver, after fees, -300% (-3x) of the daily performance of the gold miners stock index it tracks. Thus if the index DUST tracks is down 2% for the day, the ETF should deliver a 6% gain. (-3x) Of course the opposite is true as well. Remember that more leverage equals more volatility – both upward and downward.
Each short gold ETF or ETN tracks some type of asset. In the case of gold products there are really two choices: gold prices or gold stocks. Here’s a convenient grid which outlines the amount of leverage and the type of asset being tracked by each product.
Short Gold Caution & Tips
Of course it is important to remember that using any short or leveraged product means that there are additional risks. Be sure to read a prospectus and confirm your understanding of the product with a financial professional before investing. The ETFs highlighted above are highly volatile, require constant monitoring and are generally designed to be held one day or less. Here are four additional tips to review before investing in a leveraged ETF.
While gold prices have been on a steady uptick since 1999, there have been periods where a short gold strategy has been able to yield attractive returns or protection of a long position in gold. Today there are a variety of choices available for investors to short gold through ETF and ETN products but as always, be sure to understand the risks involved.
Tickers: PowerShares DB Gold Double Short ETN (NYSEARCA:DZZ), Direxion Daily Gold Miners Bear 3X Shares (NYSEARCA:DUST), ProShares UltraShort Gold (NYSEARCA:GLL), PowerShares DB Gold Short ETN (NYSEARCA:DGZ), VelocityShares 3x Inverse Gold ETN (NYSEARCA:DGLD).
Christian Magoon is Publisher of GoldETFs.biz and IndiaETFs.com. He is also CEO of Magoon Capital, a strategic consultant firm to asset managers. Christian Magoon is an ETF insider, having launched over 40 ETFs in the United States to date. A widely recognized thought leader on finance and market issues, Christian regularly contributes to many financial media outlets. Prior to forming Magoon Capital in 2010, Christian was President of Claymore Securities (now Guggenheim Investments), where he built one of the fastest growing and most innovative ETF businesses in the country, gathering more than $3 billion in AUM in three years. He launched more than 40 ETFs, introducing many “firsts” to the U.S. market, including the first Frontier Markets, Sector Rotation, Solar Energy, Timber, BRIC and suite of China focused ETFs. Christian consistently provides his industry insights and knowledge as a commentator in the U.S. media speaking publicly on macro investment issues and ETF related topics. Follow him on Twitter@ChristianMagoon. In 2008, he was named by Institutional Investor News as one of the five people to watch in the U.S. ETF marketplace. In 2011, Financial Planning magazine dubbed Christian an “ETF Pioneer.”