The narrative of a potential recession keeps on fading into the background. While interest rates remain high, dollar strength is continuing to weigh down gold prices.
The U.S. Federal Reserve’s tight monetary policy continues to be a heavy anchor point for gold prices. They started the year on an uptrend, but has since trended lower at the start of the summer. The S&P GSCI Gold Index was up over 12% in the beginning of May, but has faded since though it still is up just over 2% for the year.
Of course, stubborn inflation has been feeding into the higher-for-longer narrative the Fed has been adopting. This is especially true as the central bank continues to wrestle with inflation. A stronger dollar is making it more difficult for prospective foreign investors looking to purchase gold.
“The biggest reason could simply be the strength of the U.S. dollar,” wrote David Saito-Chung in Investor’s Business Daily. “Given that the shiny metal is priced in U.S. dollars in most of the major trading exchanges around the world, the ongoing strength in the buck vs. other key currencies likely makes gold more expensive to buy among foreign investors.”
Gold can still serve as a long-term asset diversification tool for an investor’s portfolio. Still, traders can benefit from the recent weakness in gold via inverse exchange traded funds (ETFs).
2 Bearish ETFs to Ponder
If gold continues to move downward, Direxion Investments offers traders a couple of ways to play the move via gold miners. One fund to consider is the (DUST ), which seeks daily investment results equaling 200% of the inverse (or opposite) of the performance of the NYSE Arca Gold Miners Index, which is a modified market capitalization weighted index comprised of publicly traded companies that operate globally in both developed and emerging markets, and are involved primarily in mining for gold and, to a lesser extent, in mining for silver.
Another option is the (JDST ), but don’t be fooled by the “junior” designation, as it contains the same 200% leverage as DUST. The discernment between the two is the index each follows where JDST seeks equal to twice the inverse of the daily performance of the MVIS Global Junior Gold Miners Index that tracks the performance of foreign and domestic micro-, small-, and mid-capitalization companies.
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