What Are Inverse/Short Gold ETFs? Types and Examples

Inverse or short gold ETFs are investment vehicles designed to profit when the price of gold declines. Unlike traditional gold ETFs, which track the price of gold and increase in value when gold prices rise, inverse gold ETFs move in the opposite direction. These funds are popular among traders and investors who want to hedge against a downturn in the gold market or speculate on short-term price movements without directly shorting gold futures. These ETFs offer a strategic way to capitalize on bearish outlooks, but they come with added complexity and risk.

A financial advisor can help you assess whether an inverse gold ETF fits within your broader portfolio strategy and risk tolerance, especially if you’re new to inverse or leveraged products.

What Is an Inverse Gold ETF

An inverse gold ETF is an exchange-traded fund designed to move in the opposite direction of gold prices. For example, if the price of gold falls by 1% in a day, an inverse gold ETF is intended to rise in price by approximately 1%. These funds are used by investors who want to profit from a decline in gold prices or hedge existing long positions in gold-related assets.

Inverse ETFs use financial derivatives such as futures contracts, swaps and options. They don’t directly hold physical gold or gold stocks. Instead, they synthetically replicate price movements in investing in derivatives.

Most inverse gold ETFs are structured to provide daily performance that is inverse to the performance of gold or gold indexes. As a result, they are largely designed for short-term trading rather than long-term investing.

Investors considering inverse gold ETFs should understand that these products are reset daily. This means their performance can diverge from the expected inverse return over longer periods due to compounding. While they can be useful tools in a tactical portfolio, they require active monitoring and a good understanding of how leveraged and inverse strategies work.

Types of Inverse Gold ETFs

If you want to make money when gold prices go down, there are different kinds of funds that can help. Some go up when gold goes down. Others do the same thing but with bigger moves. Some follow gold mining stocks instead of gold itself. A few can offer some protection from losses, and some include other commodities too. Here are six types to keep in mind:

Basic inverse gold ETFs (–1x). As we explained earlier, these aim to move in the opposite direction of gold prices each day. If gold drops 1%, the fund is designed to go up 1%. They’re meant for short-term use and don’t perform the same way over longer periods because they reset daily.
Leveraged inverse gold ETFs (–2x or –3x). These work like basic inverse ETFs but aim for higher returns. The fund’s goal is to earn two or three times the opposite of gold’s daily move. So, if gold falls 1%, a –2x fund tries to rise 2%. These are riskier and should be used only for very short-term trades.
Inverse gold miner ETFs. Instead of tracking gold itself, this fund moves in the opposite direction of gold mining company stocks. These stocks usually follow gold prices but can also be affected by other factors like operating costs or production issues.
Inverse gold ETNs. These are similar to inverse ETFs but are structured as debt from a bank instead of owning assets. They still aim to move opposite of gold or gold-related indexes, but they carry extra risk because they depend on the bank’s ability to repay.
Buffered gold strategy ETFs. These don’t move directly opposite of gold but are designed to protect against some losses if gold drops. In return, they limit how much you can gain if gold rises. They use options and are meant to reduce risk over a set period, like a few months.
Inverse commodity basket funds. These track the opposite performance of several commodities, not just gold. If gold is part of the basket, you get some inverse exposure to gold along with other materials like oil or silver. They’re more broad and less focused than gold-only funds.

Example of Inverse Gold ETFs

There are several inverse gold ETFs on the market, each offering a slightly different approach in terms of leverage, underlying benchmarks and trading strategy. While they all aim to capitalize on declines in the price of gold, some are designed for more aggressive short-term trades. Here’s an example of an inverse or short gold ETF.

ProShares UltraShort Gold (GLL)

The ProShares UltraShort Gold ETF (GLL) is a leveraged inverse gold ETF that seeks to provide twice the inverse (–2x) of the daily performance of the Bloomberg Gold Subindex. This means that if gold prices decrease by 1% on a given day, GLL aims to increase by approximately 2% on that same day.

GLL is designed for short-term trading and is not intended for long-term holding. Due to its daily reset mechanism, holding the fund for periods longer than one day can lead to performance deviations from the expected –2x return, especially in volatile markets. This compounding effect can result in returns that differ significantly from the anticipated inverse performance over extended periods.

Investors typically use GLL to hedge against short-term declines in gold prices or to speculate on such movements. However, the fund’s leveraged nature means that it can amplify both gains and losses, making it more suitable for experienced traders who actively monitor their positions.

Benefits of Inverse Gold ETFs

An investor comparing the benefits and risks of inverse gold ETFs.

Inverse gold ETFs offer a number of strategic benefits, especially for investors looking to take advantage of declining gold prices or manage their portfolio risk. While these products aren’t suitable for every investor, they can serve a useful purpose when deployed thoughtfully and with clear objectives.

The following are two key benefits:

Hedging against gold exposure. One of the primary uses of inverse gold ETFs is portfolio hedging. Investors with long positions in gold, gold mining stocks or commodity-heavy portfolios can use inverse gold ETFs to offset potential losses during periods when they expect gold to fall.

This allows investors to maintain their core positions while tactically reducing risk exposure. The flexibility to buy or sell inverse gold ETFs on major exchanges makes them a convenient tool for short-term protection without having to liquidate other assets.
Short-term trading opportunities. Inverse gold ETFs provide a way to profit from a declining gold market without having to short gold futures or engage in margin trading. Investors generally require special approval from brokerages before they are permitted to trade futures or trade on margin. But inverse gold ETFs are accessible through regular brokerage accounts.

These ETFs can be used for intraday or short-term trades, particularly during periods of expected volatility or downward trends in precious metals. For traders with strong convictions and the ability to monitor their positions closely, inverse ETFs can deliver quick gains in the right market conditions.

Drawbacks of Inverse Gold ETFs

While inverse gold ETFs offer tactical advantages, they come with special risks and limitations. Investors should understand how daily resets and leverage work before including these investments in a portfolio. Here are two key drawbacks to keep in mind:

Compounding risk over time. The daily reset nature of inverse ETFs means that performance over periods longer than one day may differ significantly from the expected inverse return. This is due to compounding, especially in volatile markets where daily price movements are large or erratic.

For example, if gold rises 2% one day and falls 2% the next, the inverse ETF might not return to its original price, even if the net change in gold is close to zero. This makes inverse ETFs unsuitable for buy-and-hold strategies and underscores the importance of using them only for short-term positions.
Higher volatility and risk. Inverse and leveraged ETFs are inherently riskier than traditional ETFs. While they can amplify gains, they also amplify losses. Inverse gold ETFs with 2x or 3x leverage can lose value rapidly in a rising gold market.

Additionally, because many inverse gold ETFs use derivatives, they carry risks related to liquidity, tracking error and counterparty exposure. These factors can result in greater-than-expected losses if the investment is not carefully managed.

Frequently Asked Questions

What Is the Difference Between an Inverse Gold ETF and a Traditional Gold ETF?

A traditional gold ETF seeks to track the price of gold, increasing in value when gold rises. An inverse gold ETF, on the other hand, is designed to increase in value when gold prices fall, typically on a daily basis. They are used to hedge or profit from short-term declines in gold rather than to hold gold as a long-term store of value.

Are Inverse Gold ETFs Safe for Long-Term Investing?

Inverse gold ETFs are not designed for long-term investing. Their daily reset mechanism leads to compounding effects, which can distort returns over multiple days, especially in volatile markets. These funds are best suited for short-term trading and require active monitoring.

Can I Use Inverse Gold ETFs in a Retirement Account?

Yes, many inverse gold ETFs are available in IRAs and other retirement accounts, but caution is advised. Their short-term nature and volatility make them inappropriate for most long-term retirement strategies. Always consult a financial advisor before including inverse or leveraged ETFs in a retirement portfolio.

How Do I Buy an Inverse Gold ETF?

You can buy inverse gold ETFs through a standard brokerage account, just like any other ETF. They trade on major stock exchanges during market hours. Before investing, research the fund’s objectives, expense ratio and underlying benchmark to ensure it aligns with your strategy.

Bottom Line

An investor reviewing her investment portfolio.

An inverse gold ETF can be useful for investors aiming to profit from falling gold prices or hedge against short-term downside risk. These funds offer an accessible, flexible way to make bearish gold trades without using margin or derivatives directly. However, they come with elevated risk, are best suited for short-term use and require a solid understanding of how daily resetting and compounding affect performance.

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