Gold prices have been struggling over the past coupe of months as equities have picked up steam and set their sights on historic highs. As such, many investors have moved out of gold and into equities, looking to cash in on the currently bull market. This trend can be easily demonstrated by the SPDR Gold Trust (GLD), which holds physical gold bullion. The fund has lost more than $4.7 billion in assets in 2013, though it still remains the second largest ETF in the world [for more gold news and analysis subscribe to our free newsletter].
These trends have led to concern among many analysts covering the yellow commodity, with the average price target being cut by roughly 12%. Credit Suisse and Danske Bank, who have solid reputations in predicting gold prices, estimate that the precious metal will average around $1,720 per ounce this year. If the global economy keeps improving, some other analysts predict that prices could move back down to the $1,400 to $1,500 per ounce mark. Thus brings the demand for investors looking to pit their assets against gold, fearing a further drop in the commodity.
Betting Against Gold
There are many different ways to bet against gold prices. Short-selling gold futures in the commodity market, by borrowing, immediately selling and then repurchasing contracts at a (ideally) lower price, represents the most direct method. But, ETFs and equities provide a much easier way to accomplish the task. Investors can trade these assets without worrying about margin requirements or managing complex futures positions [see also Three Reasons Why Gold Is Overvalued].
Here are three options for investors to easily bet against gold:
- ProShares UltraShort Gold ETF (GLL) – With the goal of achieving two times the inverse of the daily performance of gold bullion measured in U.S. dollars, this fund is the easiest and most popular way to bet against gold bullion. These bets are made via swap agreements, forward contracts and options contracts that result in a net short position. The fund has a somewhat lofty expense ratio of 1.79%, but it offers more liquidity than many other ETFs, with over $100 million in total net assets under management.
- Direxion Daily Gold Miners Bear 3x Shares (DUST) – With the goal of achieving three times the inverse of the daily performance of the NYSE ARCA Gold Miners Index, this fund gives investors a way to bet against gold producers. Since their valuations depend on gold prices, gold producer equities represent a way to bet on gold price sentiment without betting on gold directly. The fund’s 1.08% expense ratio is a bit steep for an ETF, but the fund has reasonable liquidity, despite just over $30 million in total assets, with diversified exposure to Canada (62.88%), the U.S. (17.15%) and South Africa (10.8%) [see also Investing In Gold: The Definitive Guide].
- PowerShares DB Gold Short ETN (DGZ) – With the goal of achieving the inverse of the daily performance of the Deutsche Bank Liquid Commodity Index – Optimum Yield Gold, which tracks the long or short performance of a single unfunded gold futures contract, this ETN offers less leverage than the double-short GLL with a cheaper expense ratio of 0.75% and about $43 million in total assets. However, investors should be aware that this is an ETN, meaning there are no tracking errors, but different tax treatment and added credit risk compared to the aforementioned ETFs.
Traders that are long-term gold bulls, but worried about short-term downside, may also want to consider the RBS Gold Trendpilot ETN (TBAR). Since it’s linked to an index with oscillating exposure between gold and cash, depending on the price of the metal relative to the moving average, there is a built-in margin of safety for investors. For instance, when gold moves lower, there’s an increase in cash versus gold holdings, thereby limiting the downside exposure.
Disclosure: No positions at time of writing.