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Gold at a Two-Month Low: Time to Buy Inverse ETFs?
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Gold prices lost 3.3% in the past five days (as of Apr 27, 2022) and 3.5% past month on faster-than-expected Fed rate hike speculation. Fed Chairman Jerome Powell recently said that the central bank is committed to raising rates “expeditiously” to tame red-hot inflation.
Investors took the statement as an interest rate hike of 50 basis points in May as inflation is at a 40-year high. “It’s absolutely essential to restore price stability,” Powell added, per a CNBC article. Reacting to Powell’s comments, the yield on the benchmark 10-year Treasury note staged an ascent (read: A 50-Bp Rate Hike in May? Sector ETFs to Win).
A rise in rates is likely to boost the greenback. Notably, the dollar index is at five-year highs and a further ascent above 103.82 would send it to levels not visited since late-2002. The U.S. dollar hit a 20-year peak against the yen. No wonder, gold hit its lowest level in more than two months on a sturdy dollar as the metal is priced at the greenback.
Plus, gold is highly sensitive to rising U.S. short-term interest rates and higher yields, which increase the opportunity cost of holding non-yielding bullion. Benchmark U.S. treasury yield was 2.82% on Apr 27 versus 2.39% at the start of the month.
Why Gold Has Fallen Low on Inflation-Protection Status This Time
Yes, gold is usually viewed as an inflation-protected asset. But, since one-and-a-half month of the Ukraine war and the continued sturdiness in inflation (both factors should have instigated a gold rally) have not bolstered gold prices, we believe a further fall in the yellow metal prices is likely due to a strong dollar.
Investors have probably decided to bet on agricultural and other commodities as a hedge against inflation, not gold, this time. Brian Lan, managing director at dealer GoldSilver Central, said that lockdowns in China to contain the spread of COVID-19 have impacted demand from the top consumer, as quoted on CNBC. India, another major consumer of gold, has also been grappling with higher energy costs, inflation and slowdown risks.
Against this backdrop, investors may short gold and bet on the below-mentioned exchange-trade products.
ETFs in Focus
ProShares UltraShort Gold (GLL) – Up 5.52% 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 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 expense ratio of the fund is 0.95%.
DB Gold Double Short Exchange Traded Notes (DZZ - Free Report) – Up 4.1% Past Month
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 - Free Report) – Up 3% Past Month
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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Gold at a Two-Month Low: Time to Buy Inverse ETFs?
Gold prices lost 3.3% in the past five days (as of Apr 27, 2022) and 3.5% past month on faster-than-expected Fed rate hike speculation. Fed Chairman Jerome Powell recently said that the central bank is committed to raising rates “expeditiously” to tame red-hot inflation.
Investors took the statement as an interest rate hike of 50 basis points in May as inflation is at a 40-year high. “It’s absolutely essential to restore price stability,” Powell added, per a CNBC article. Reacting to Powell’s comments, the yield on the benchmark 10-year Treasury note staged an ascent (read: A 50-Bp Rate Hike in May? Sector ETFs to Win).
A rise in rates is likely to boost the greenback. Notably, the dollar index is at five-year highs and a further ascent above 103.82 would send it to levels not visited since late-2002. The U.S. dollar hit a 20-year peak against the yen. No wonder, gold hit its lowest level in more than two months on a sturdy dollar as the metal is priced at the greenback.
Plus, gold is highly sensitive to rising U.S. short-term interest rates and higher yields, which increase the opportunity cost of holding non-yielding bullion. Benchmark U.S. treasury yield was 2.82% on Apr 27 versus 2.39% at the start of the month.
Why Gold Has Fallen Low on Inflation-Protection Status This Time
Yes, gold is usually viewed as an inflation-protected asset. But, since one-and-a-half month of the Ukraine war and the continued sturdiness in inflation (both factors should have instigated a gold rally) have not bolstered gold prices, we believe a further fall in the yellow metal prices is likely due to a strong dollar.
Investors have probably decided to bet on agricultural and other commodities as a hedge against inflation, not gold, this time. Brian Lan, managing director at dealer GoldSilver Central, said that lockdowns in China to contain the spread of COVID-19 have impacted demand from the top consumer, as quoted on CNBC. India, another major consumer of gold, has also been grappling with higher energy costs, inflation and slowdown risks.
Against this backdrop, investors may short gold and bet on the below-mentioned exchange-trade products.
ETFs in Focus
ProShares UltraShort Gold (GLL) – Up 5.52% 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 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 expense ratio of the fund is 0.95%.
DB Gold Double Short Exchange Traded Notes (DZZ - Free Report) – Up 4.1% Past Month
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 - Free Report) – Up 3% Past Month
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.