Nothing Wrong With A Short Gold ETF

For some reason we associate short with bad, like it’s short on returns, or short on talent, not so with short gold ETFs.  In the investing world short just means we bet it’s going down.  When we literally short gold we are selling gold we don’t own with a promise (unbreakable contract) to buy the gold back in the future.  When we buy the gold back in the future for a lower price than we sold it for then we’ve just made money.  The bad side of shorting is the potential loss is infinite, as opposed to regular investing where the max loss is 100%.  This is where the short gold fund comes into play.

When you purchase a short ETF gold fund, it’s the fund’s responsibility to manage how they will make the value of their company go up when the price of gold is going down.  They will generally do this with a mix of shorting gold as explained earlier, buying and selling contracts on gold and shorting companies related to the gold industry or buying companies that will do well when the price of gold is on the decline.  All you need to know is your conviction that the price of gold will go down, the fund will do all the technical work to make their returns match your desire.  If you’re wrong you can only lose your investment, not more.

One short gold ETF is GLL (Ultrashort Gold Proshares), and if you want even more action you can use a leveraged gold short fund like DZZ (PowerShares DB Gold Double Short ETN.)  Whenever shorting I recommend using a stop loss because the long term trend on gold prices (as almost all precious metals) is up.  You don’t want to fight the long term trend by holding a short fund long term, but you can certainly make a profit on a shorter time frame.

Tags: gold ETFinverse gold ETFshort gold ETF