How to Short Gold and Silver with ETFs

Precious metals look no more precious now as prices are falling fast since the greenback gained strength, global growth became stubbornly weak and worldwide muted inflation sapped the demand of these metals. Possibilities of a Fed lift-off in December took the U.S. dollar to a seven-month high level tempering the appeal of non interest bearing precious metals across the board (read: ETFs & Stocks to Add on Solid Jobs Data).
 
In fact, gold and silver bullion have receded about 10% so far this year (as of November 17, 2015). Both metals are now at their six-year lows. While the gold bullion ETF SPDR Gold Shares (GLD) touched its 52-week low on November 17, the silver bullion ETF iShares Silver Trust (SLV) is trading just 1.5% higher than its 52-week low. Most market participants are now forecasting a bigger drop in the days ahead when the Fed pulls the trigger on tightening.
 
This is especially true with silver as it has a high exposure in industrial activity. The U.S. economy is decently improving but China, which is considered the biggest industrial fabricator after the U.S., is seeing lackluster manufacturing activities. Soft industrial demand is impacting the price of the silver bullion as about 50% of the metal’s total demand comes from industrial applications.

Europe is still facing deflationary threats and we are seeing an increasing appetite for equities over commodities backed by the easy money received from the ECB’s QE stimulus. All these factors suggest a bearish trend for gold and silver at least for the short term.  As a result, investors who are bearish on gold and silver right now may want to consider a near-term short on these precious metals (read: Top ETF Stories to Watch for in November).

Fortunately, precious metal ETFs offer several options to investors to accomplish this task. Below, we highlight a few of our favorites and some of the key differences between each in this market (see all inverse commodity ETFs here):

ProShares UltraShort Silver ETF (ZSL)

This fund seeks to deliver twice (2x or 200%) the inverse (or opposite) return of the daily performance of silver bullion in U.S. dollars; the silver price is fixed for delivery in London. ZSL makes a profit when the silver market declines and is suitable for hedging purposes against the fall of silver prices.

The fund charges 95 bps in fees a year. However, it has AUM of $79.1 million and average daily volumes of roughly 50,000 shares. The inverse silver ETF gained about 22.8% in the last one month (as of November 17, 2015), suggesting it has been a solid investment in the current environment.

VelocityShares 3x Inverse Silver ETN (DSLV)

This product provides three times (3x or 300%) short exposure to the daily performance of the S&P GSCI Silver Index Excess Return plus returns from U.S. T-bills net of fees and expenses.
The $22-million ETN is a high cost choice in the silver bullion space, charging 165 bps in fees per year from investors. Unsurprisingly given the slump in silver, the note has returned about 36% in the last one month buoyed up by negative sentiments for silver the metal across the globe.

ProShares Ultra Short Gold ETF (GLL)

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. GLL gains when the gold market falls and is appropriate for hedging purposes against the decline in gold prices. With an expense ratio of 0.95%, the product has AUM of $83.3 million. The ETF gained about 19% in the last one month (as of November 17, 2015).

DB Gold Double Short ETN (DZZ)

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. DZZ initiates a short position in the gold futures market but charges a relatively lesser price of 75 bps a year.

The product has amassed over $70 million in AUM. The ETN generated impressive returns of over 15.4% in the one-month time frame, and its solid volume of 400,000 shares a day makes it a good choice for many traders as it has a relatively tight bid/ask spread and lower trading costs.

VelocityShares 3x Inverse Gold ETN (DGLD)

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.

This $19 million-ETN charges 135 bps in fees per year from investors. Additionally, it has a wide bid/ask spread given its small average daily volume of 15,000 shares that increases the total cost of the product. DGLD was up 29% in the last one month (as of November 17, 2015).

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SPDR-GOLD TRUST (GLD): ETF Research Reports
 
ISHARS-SLVR TR (SLV): ETF Research Reports
 
PRO-ULS SILVER (ZSL): ETF Research Reports
 
VEL-3X INV SLVR (DSLV): ETF Research Reports
 
VEL-3X INV GOLD (DGLD): ETF Research Reports
 
PRO-ULS GOLD (GLL): ETF Research Reports
 
DB-GOLD DBL SHT (DZZ): ETF Research Reports
 
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