Short Gold ETF & ETN Products (Inverse)

Short or Inverse ETFs have become a popular way for investors to place bearish bets on markets. Since gold has been in a multi year bull market you had to be pretty nimble to make money in an inverse gold fund.

DGZ PowerShares DB Gold ETN is the only product for shorting gold on an unleveraged basis at this time, the other inverses are 2x leverage products.

This ETN uses financial derivatives to achieve the inverse correlation and has an annual expense ratio of .75% (75 basis points) which is the same as the other PowerShares Gold ETN products.

As you can see DGZ has had a very strong inverse correlation with the price of gold since inception which means it has been a success despite losing over 30% of it’s value. The whole purpose of the inverse etf is to closely match the opposite performance of the underlying asset which DGZ has done quite well.

DGZ VS GLD Since Inception

Chart begins on DGZ first trading day

Double Short Gold ETF

GLL — Proshares Ultra Short Gold ETF Leverage is a beautiful thing when you correctly anticipate a market move. There is a downside to leverage however which is clearly illustrated by these double inverse ETFs. This is what’s known as a 2x leveraged inverse fund which attempts to accomplish the 200% of the inverse for movements in gold on a daily basis. In other words if gold is up 1% on a given day the goal of this fund is to be down 2% or if gold is down 2% the goal of this fund is to be up 4%. As you can see this fund has been a brutal place to be during the current bull market in gold. There will come a day when the gold market reaches it’s peak and that will be the time to consider this fund. Many investors and traders will get beat up trying to find that market top!

The annual expense ratio is the same as the UGL double long etf at .95% (95 basis points) as this fund deploys the same derivative strategies using forward contracts and gold futures. GLL currently has an average daily trading volume of 194,586 shares which is very liquid but not quite as liquid as DZZ .

When looking at the performance of the fund you can see that the accumulated loss hasn’t quite been twice the rally in GLD but considering the magnitude of the move it is still a respectably close to a 2x inverse relationship.

Double Short Gold ETN

DZZ — PowerShares DB Double Short Gold ETN is the inverse of their DGP ETN. It’s goal is the same as GLL to provide a 200% inverse correlation to the daily performance of gold. The annual expense ratio is the same at .75% (75 basis points) and the average daily volume is currently 608,747 shares so liquidity is good.

It would appear by this chart that DZZ has accomplished a correlation closer to 200% than GLL but to know for sure we need to compare the same time frame.