Gold and Silver Bear ETFs Shine as Dollar Soars
Precious metal prices slumped Thursday as investors flocked to the U.S. dollar as an alternative hedge against the uncertainties surrounding Brexit and the unresolved trade war between the United States and China. E-micro Gold Futures for June (MGC=F) edged down 1.4% – failing to hold above the psychological $1,300 level – while COMEX miNY Silver Futures for May (QI=F) dropped 2% and threatened to break below $15. Meanwhile, the U.S. Dollar Index (DX-Y.NYB), a measure of the greenback relative to the value of a basket of other developed currencies, traded up 0.5%.
In recent weeks, the dollar has also benefited from other major central banks keeping a lid on rising interest rates. "Gold bugs have been left frustrated because of the fact other major central banks have also turned dovish, thereby keeping the dollar supported indirectly as foreign currencies tumbled," Forex.com analyst Fawad Razqzada told Investing.com.
Traders can profit from falling gold and silver prices by using one of the following three leveraged inverse exchange-traded funds (ETFs). Each fund broke out of a continuation pattern in yesterday's trading session, suggesting higher prices ahead. Let's run through several trading ideas.
ProShares UltraShort Gold ETF (GLL)
With net assets of $20.8 million, the ProShares UltraShort Gold ETF (GLL) aims to provide investment results that correspond to two times the inverse daily performance of the Bloomberg Gold Subindex. The underlying index reflects the performance of gold as measured by the price of COMEX gold futures contracts. GLL, which launched at the height of the 2008 financial crisis, achieves its leveraged return using derivative products such as swaps and futures contracts. The ETF's average 0.03% spread and daily dollar volume of $1.66 million make it ideal for traders who want a short-term bet against the yellow metal. As of March 29, 2019, the fund charges a management fee of 0.95% is down 3% year to date (YTD).
GLL shares trended steadily lower between November and mid-February before catching a bid in the later stages of last month as gold prices fell away. The fund consolidated throughout most of March to form a flag pattern before breaking to the upside on above-average volume in yesterday's trading session. Traders who buy here should look to book profits on a move to $78, where the price finds resistance from a horizontal line stretching back to July 2018. Consider placing a stop-loss order just below the 50-day simple moving average (SMA) to protect trading capital.
ProShares UltraShort Silver ETF (ZSL)
Also launched in 2008, the ProShares UltraShort Silver ETF (ZSL) seeks to provide two times the inverse daily return of the Bloomberg Silver Subindex. The fund's benchmark reflects the performance of silver as measured by the price of COMEX silver futures contracts. Although the fund's expense ratio of 1.62% is significantly above the 1.11% category average, it shouldn't overly affect short-term stays. The ETF's competitive 0.12% average spread and ample liquidity make it suitable for both intraday plays and swing trades against the silver price. ZSL, with assets under management (AUM) of $15.4 million, sports a 3.58% YTD gain as of March 29, 2019.
ZSL's share price rose 3.64% Thursday on heavy volume, gapping above both the top trendline of a flag pattern and the 200-day SMA. The relative strength index (RSI) sits below overbought territory, indicating that the price has room to keep tracking higher. Those who trade the breakout should set a take-profit order near $45 – in the vicinity of last year's double top. Close open positions if the price falls beneath the March 27 low at $37.85.
Direxion Daily Junior Gold Miners Index Bear 3X Shares (JDST)
The Direxion Daily Junior Gold Miners Index Bear 3X Shares (JDST), created in 2013, seeks to provide three times the inverse daily performance of the MVIS Global Junior Gold Miners Index. The tracked benchmark consists of junior gold and silver mining companies from both developed and emerging markets that generate at least 50% of their revenue from mining activities. Its top weightings include AngloGold Ashanti Limited (AU) at 6.65%, Kinross Gold Corporation (KGC) at 6.21% and Northern Star Resources Limited (NESRF) at 5.56%. Trading at $39.14 with AUM of $101.5 million and offering a 0.74% dividend yield, the fund has slipped nearly 30% so far this year as of March 29, 2019. JDST charges a management fee of 1.09%.
After jumping almost 50% from low to high in February, the JDST share price gave back a large part of those gains in March until the bulls jumped back into the ETF yesterday and pushed it up 10.60%. The fund now sits above a falling wedge pattern and looks poised to initially test the $44 level before possibly continuing to $55, where it meets overhead resistance from price action over the past 12 months. Traders should move their stop to the breakeven point if the fund reaches the first resistance area and take profits on a follow-through move above $50. Cut losses if the price closes below the wedge pattern's top trendline, as this would invalidate the setup.
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