Short Gold ETF

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A short gold ETF, or inverse gold ETF is an exchange traded fund that uses various derivatives to construct a security that profits from declines in the price of the underlying gold investment. Shares in short gold ETFs increase in value as the price of gold declines. Some short ETFs react inversely to the actual price of gold bullion, while others are tied to movements in specific gold indices.

An exchange traded fund is a security that tracks an underlying commodity, index, or equity and trades like a stock on an exchange. Short Gold ETFs offer investors a number of advantages that make them attractive. For the average individual investor who believes the price of gold is going to fall and wants to bet accordingly, it can be difficult to do so without incurring significant transaction costs that take away from end returns. Because short ETF gold investments trade on an exchange they can be just as easily bought and sold as a share of a publicly traded company. The managers or custodians of the ETF are professionals who have teams of analysts and other portfolio managers who are capable of efficiently constructing these securities so they react to gold prices exactly as they are intended to. Individuals who might not otherwise be able to are given the ability to buy and sell short bullion ETFs as they please and this benefits them and the market by enhancing true price discovery and increasing market liquidity. Another advantage is that short ETFs in general do not require investors to have a margin account as would be the case for traditional short positions.

In addition to individual investors, large institutional investors such as hedge funds and mutual funds are also able to take advantage of short gold ETFs to have some exposure to a downturn in gold prices. While there are some speculators who use inverse gold ETFs to place one way bets on the spot prices of gold, most investors use them to hedge existing positions within their portfolio.

Shorts Gold ETFs to Buy
PowerShares DB Gold Short ETN, ticker symbol DGZ, moves inversely to the Deutsche Bank Gold Index. Another offering, the PowerShares DB Gold Double Short ETF (DZZ), is the same as the DGZ except that it is double the return. The UltraShort Gold ProShares, ticker symbol GLL, is a direct negative bet on the price of gold bullion. Both types of short gold ETFs share the same principle and react largely the same way.