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Should You Tap Inverse Gold ETFs Before Fed Meets?

·3 min read

Gold prices dropped to a two-week low on Sep 14, as a stronger greenback and expectations of big interest rate hikes from the Federal Reserve dulled the metal’s appeal. Hotter-than-expected inflation data for the month of August boosted bets for extremely aggressive monetary policy tightening by the Fed.

Following Tuesday's inflation report, data from the CME Group revealed that there is a 72% chance of a 0.75% rate hike next week and a 28% probability of a 1% rate hike (at the time of writing). Last week, this data showed a 75%-25% chances between a 75-basis-point and a 50-basis-point rate hike.

One-year U.S. treasury yield was 3.95% on Sep 14, 2022 while 10-year U.S. treasury yield was 3.41%. Due to rising rate concerns and recessionary fears, markets slumped. Invesco DB US Dollar Index Bullish Fund UUP has gained 4% past month (as of Sep 14, 2022).

Gold is sensitive to rising U.S. interest rates, as these raise the opportunity cost of holding non-interest-bearing bullion. Moreover, gold is priced in the U.S. dollar. Hence, a spike in the greenback lowers the value of gold. “A 100-basis-point rate rise will see gold break below $1,680/oz,” said Michael Langford, director at corporate advisory firm AirGuide, as quoted on CNBC.

SPDR Gold Trust GLD lost about $558.3 million in assets so far this month. “Outflows from gold-backed exchange traded funds suggest investors are reluctant to hold the precious metal in the short term,” analysts at ANZ said in a note, as quoted on CNBC.

Inverse Gold ETFs

Against this backdrop, below we highlight inverse gold ETFs to gain some quick returns.

ProShares UltraShort Gold GLL – Up 12.3% Past Month

The ProShares UltraShort Gold seeks daily investment results, before fees and expenses, that correspond to twice the inverse of the daily performance of Bloomberg Gold Subindex. The underlying Bloomberg Gold Subindex is the procedure by which the price of Gold is set on the London market by five members of the London Gold Pool. The fund charges 95 bps in fees.

DB Gold Double Short Exchange Traded Notes DZZ – Up 13.5%

The DB Gold Double Short ETN provides investors with a cost-effective & convenient way to take a short or leveraged view on the performance of gold. It is based on a total return version of the Deutsche Bank Liquid Commodity Index Optimum Yield Gold. The fund charges 75 bps in fees.

DB Gold Short Exchange Traded Notes DGZ – Up 6.6%

The DB Gold Short ETN provides investors with a cost-effective & convenient way to take a short or leveraged view on the performance of gold. It is based on a total return version of the Deutsche Bank Liquid Commodity Index Optimum Yield Gold. The fund charges 75 bps in fees.


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SPDR Gold Shares (GLD): ETF Research Reports
 
Invesco DB US Dollar Index Bullish ETF (UUP): ETF Research Reports
 
DB Gold Double Short ETN (DZZ): ETF Research Reports
 
DB Gold Short ETN (DGZ): ETF Research Reports
 
ProShares UltraShort Gold (GLL): ETF Research Reports
 
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Zacks Investment Research