Gold has been performing appallingly this year as investors
are shifting to more risky asset classes like equities. This is
especially true in the backdrop of the strengthening dollar and
continued bullishness in the stock market, two conditions that
are tempering safe haven appeal across the board.
In fact, gold bullion has plunged double digits in the
year-to-date time frame and is easily underperforming the broad
markets when compared to the 10% gain for Dow, 8% gain for the
S&P 500, 6% for Nasdaq, 5% for FTSE and 25% for the Nikkei
Top Performing ETFs of the First Quarter
). Currently, gold is trading below $1,400 per ounce with some
forecasting a bigger drop in the days ahead as well.
This is especially true given some of the fundamental factors
surrounding global markets. The U.S. economy is improving,
we are seeing weak consumption demand from economies like India
and China, and an increasing appetite for equities over
Investors are also concerned about the longevity of the Fed's
quantitative easing measures given the growing signals about a
slowdown in the pace of $85 billion asset purchases in the second
half of the year or the early end of the program. If this program
slows down and the markets are able to hold steady, it could add
to the appeal of equities and dull demand for gold (see more
Further, the ultra-popular
SPDR Gold Trust ETF
), with an asset base of around $58.3 billion and an average
daily volume of around 10 million shares, has seen more than $8.6
billion in outflows so far this year. While this might not seem
like a huge number, investors should note that this is nearly two
times greater than the second biggest outflow (
) in the same time frame (read:
A Technical Perspective on Gold ETFs
Given these outflows and the optimism over economic growth in
the medium run, the appeal of the gold ETFs seems to be dulling.
This could be especially true if European woes make investors
flee to the dollar, curtailing the demand for gold even
As a result, investors who are bearish on gold right now, may
want to consider a near term short on the precious metal.
Fortunately with the advent of ETFs, this is quite easy as there
are many options for accomplishing this task. Below, we highlight
a few of our favorites and some of the key differences between
ProShares Ultra Short Gold ETF (
This fund seeks to deliver twice (2X or 200%) the inverse
return of the daily performance of gold bullion in U.S. dollars;
the gold price is fixed for delivery in London. Launched in Dec
2008, GLL makes a profit when the gold market declines and is
suitable for hedging purposes against the fall of gold
The product is expensive when compared to other geared options
in the space though, charging 95 bps in fees a year. However, it
is rich in AUM and average daily volumes with $109.2 million and
roughly 200,000 shares, respectively. The ETF has gained over 26%
so far in the year.
DB Gold Short ETN (
Launched in Feb 2008, ETN tracks the performance of the DBIQ
Optimum Yield Gold Index Excess Return plus the interest income
from U.S. Treasury bills, net of fees and expenses.
The product has an inverse (opposite) relation to the movement
of gold prices and thus creates a short position in the
underlying index. It has managed assets of $33.4 million so far
in the year and trades in average daily volume of more than
100,000 shares. This suggest a relatively wide bid/ask spread
increasing the total cost for the product beyond the annual fees
of 75 bps.
DGZ has added about 12.7% year-to-date (read:
3 ETF Strategies For Long Term Success
DB Gold Double Short ETN (
This ETN seeks to deliver twice (2X or 200%) the inverse
return of the daily performance of the DBIQ Optimum Yield Gold
Index Excess Return, before fees and expenses.
DZZ initiates a short position in the gold futures market and
has a relatively tight bid/ask spread with an average volume of
roughly 424,000 shares per day. The note charges 75 bps in fees
per year from investors.
The product has amassed over $80 million in AUM since its
inception in Feb 2008. The ETN generated impressive returns of
over 26% in the year-to-date time frame, and its solid volume
makes it a good choice for many traders.
VelocityShares 3x Inverse Gold ETN (
This product provides three times (300%) short exposure to the
daily performance of the S&P GSCI Gold Index Excess Return
plus returns from U.S. T-bills net of fees and expenses (read:
Have We Seen the Bottom in Gold ETFs?
The ETN was launched in Oct 2011 and since then has been able
to amass an asset base of only $5.5 million. The product is the
high cost choice in the gold bullion space, charging 135 bps in
fees per year from investors. Additionally, it has a wide bid/ask
spread given its small average daily volume of 20,000 shares that
increases the total cost of the product.
Not surprisingly, the note returned an excellent 41% so far in
the year buoyed by negative sentiments for gold across the
Investors should note that since these products are extremely
volatile, these are suitable only for traders and those with a
high risk tolerance. Additionally, the daily rebalancing-when
combined with leverage-may make these products deviate
significantly from expected long term performance figures.
Still, for ETF investors who are bearish on gold in the near
term, any of the above products could make for interesting
choices. Clearly, many are abandoning the precious metal, so a
near term short could be intriguing for those with a high risk
tolerance, and a belief that the trend is your friend in this
corner of the investing world.
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VEL-3X INV GOLD (DGLD): ETF Research Reports
DB-GOLD SHORT (DGZ): ETF Research Reports
DB-GOLD DBL SHT (DZZ): ETF Research Reports
SPDR-GOLD TRUST (GLD): ETF Research Reports
ISHARS-GOLD TR (IAU): ETF Research Reports
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