Gold's Tumble Not Luring Traders To Inverse ETFs

SPDR Gold Trust (ETF) GLD, the world's largest exchange-traded product backed by physical holdings of bullion, has lost 10 percent year-to-date.

With many market participants expecting the Federal Reserve to raise interest rates at its December meeting, GLD and rival gold ETFs are seeing their losses accelerate.

Gold On The Move

In just the past month, GLD is lower by 8.2 percent. On Monday, GLD notched its lowest close since the final trading day of the third quarter of 2009. As market participants continue resetting interest rate hike expectations to reflect the notion that the Federal Reserve will increase borrowing costs following its December meeting, plenty of rate-sensitive asset classes and sectors are coming under intense scrutiny.

Related Link: Gold Miners ETFs Are Getting Smoked

Add commodities and commodities producers to that list – a list that most certainly includes gold and gold mining equities. The November tale of the tape for leveraged gold miners exchange-traded funds reflects the havoc traders expect will be wrought upon gold and bullion-producing companies as the Fed inches closer to higher interest rates.

Even with all of gold woes, many traders have not been tempted by various inverse gold exchange-traded products. Those traders are missing out.

Give Inverse Gold Another Look

Over the past month, the DB Gold Double Short ETN due February 15, 2038 DZZ and the ProShares UltraShort Gold (ETF) GLL, which attempts to deliver double the daily inverse performance of the London fixing gold price, have each soared nearly 18 percent. Yet, since the start of the current quarter, GLL has lost nearly $1.1 million in assets while DZZ has added a modest $7.6 million.

Over the same period, GLD has bled more than $893 million. Only two ETFs have lost more assets during the fourth quarter than GLD. Year-to-date, GLD is lighter by $1.6 billion in assets, an outflows total exceeded by just eight other ETFs.

DZZ and GLL are not the only inverse gold ETFs receiving a chilly reception from traders. The DB Gold Short ETN due February 15, 2038 DGZ, the non-leveraged equivalent of DZZ, has climbed 8.8 percent over the past month; however, since the start of the fourth quarter, DGZ has lost nearly $19 million in assets.

The Credit Suisse AG - VelocityShares 3x Inverse Gold ETN DGLD, which attempts to deliver triple the daily inverse performance of the S&P GSCI Gold Index Excess Return, has surged a staggering 29 percent over the past month. One might think a performance like that would lure traders to DGLD, but the triple-leveraged ETN has seen fourth-quarter inflows of just $1.5 million.