What is a short gold ETF?
A short gold ETF is a exchange-traded fund (ETF) who seeks to take advantage of a fall in the gold price. Short gold ETFs are also known as inverse gold ETFs, or bear AND F.
In some cases, short gold ETFs will offer leverage to investors, so that a given drop in the price of gold would result in an even greater increase in the value of the ETF, and vice versa. These are known as short leveraged gold ETFs.
Key points to remember
- Short gold ETFs offer a convenient way to bet against the price of gold.
- Gold often rises during times of economic uncertainty, such as in the midst of financial crises. Therefore, short gold ETFs can be useful for contrarian investors who believe that other investors may be overestimating the risks involved in these times.
- Some short gold ETFs also offer additional leverage, which would maximize any potential gains or losses incurred on the position.
Understanding Short Gold ETFs
As with all ETFs, short gold ETFs are investment products traded on the public scholarship. By investing in a short gold ETF, the investor is exposed to a security whose market price is designed to follow the opposite pattern to the market price of gold itself. For example, if gold rises 10% in a given trading day, the short gold ETF will theoretically fall 10%. Similarly, if gold drops 10%, the short gold ETF will rise by the same amount.
Although ETFs are generally very accurate in tracking their Underlying strengths or indexes, there is no guarantee that they will necessarily succeed. In fact, it is common for ETFs to have a small amount of inaccuracy, which is commonly referred to as ETF. tracking error. In addition to looking for low-fee ETFs, investors should also consider how low their historical tracking errors are.
Depending on the provider of the short gold ETF, the exact methodology used to produce the product can vary significantly. For example, some providers may link the short gold ETF to a long gold ETF, such as the popular SPDR Gold Trust (GLD). Others might link the short gold ETF to gold mining stocks or to a specific subset of gold futures contracts. Again, it is important that investors understand the methodology used to calculate daily market prices for the product.
Concrete example of a short gold ETF
Historically, investors have tended to invest in gold during times of heightened financial anxiety, such as in the midst of a credit crunch Where financial crisis. At other times, gold demand can be boosted by concerns inflation. In the years following the Financial crisis of 2007-2008for example, the price of gold has risen dramatically, in part due to fears that the government expansionary monetary policy could result in the value of the US dollar (USD) to decrease.
Of course, there will always be investors who want to bet against the tide. Products such as short gold ETFs offer a convenient way to take a against a current position without having to initiate the transaction, financing or detention costs directly associated short sale the assets in question.
For these investors, there are many potential options available. As an example, the DB Gold Short ETF (DGZ) seeks to provide returns inversely proportional to the average monthly performance of gold.
Other securities, such as the VelocityShares 3x Inverse Gold ETN (DGLD), serve the same purpose but also offer leverage to maximize potential return. Of course, if the price of gold goes up during the holding periodthen the losses incurred as a result of holding a Leveraged ETFs would also be maximized.