For those familiar with gold investing, you may have heard of short gold ETF funds. In today’s world of international investments and financial engineering, it is possible to bet on or against just about anything, including gold. Shorting securities, or betting that their price will decrease, is an increasingly popular investment that is used both for speculation and to hedge overall portfolios.
With the proliferation of exchange traded funds, or ETFs, it is not surprising that a large number of short ETFs have been launched as well. An ETF is a security that trades like a stock on an exchange and tracks the movement of an underlying index of commodity. An ETF can track the price movements of almost any financial investment and today there are hundreds of ETFs that mirror the movements of everything from stock indexes to the price gold. A short gold ETF is simply one that invests in numerous derivatives that enable it to profit when the spot price of gold declines. There are some short gold ETFs that even use leverage to increase both the risk and return associated with the price gyrations of gold.
There are several reasons an investor would be interested in purchasing a gold short ETF. If a speculator thought that gold was overpriced and due for a correction, they could buy a short gold ETF and earn a profit if their forecasting was indeed correct. Another popular technique involves an investor with large gold positions in their portfolio who may want to purchase a short ETF to protect their long position over the long run.
The main benefit of an gold inverse ETF fund is that it gives an individual, and sometimes even institutional investors, the opportunity to bet against gold when it might otherwise have been overly costly to do so. By keeping transaction costs to a minimum and hiring professionals to manage the funds, ETFs are able to offer an efficient, inexpensive way to gain exposure to falling gold prices. Like other short ETFs, short gold ETFs also increase the liquidity in the marketplace, a development that is good for everyone.