Gold Prices: 3 Ways to Play the Bullion Retreat

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Gold prices have been in secular decline ever since the summer of 2011, peaking at $1,921.50 per ounce then to just above $1,200 today.

gold and silver mining sector

Source: istockphoto.com/3pod

The first 10 years of the 2000s — often referred to as the “lost decade” for stocks — saw bullion prices soar as investors fled to safety in times of war and recession. A print-happy Federal Reserve and rock-bottom interest rates put the cherry on top.

However, a slowly improving economy and sluggish inflation have brought prices closer to earth, and with the Fed now signaling that the days of easy money are likely winding down in 2015, goldbugs look to be in even more trouble.

There are a number of ways to play the gold price decline — both now and down the road — and today we’ll tackle three. The first two strategies are for those wishing to bet against gold, while the last one could make you bundles if and when the price of gold recovers.

Here’s a look:

ProShares UltraShort Gold ETF (GLL)

ProShares UltraShort Gold ETF (GLL)Inverse ETFs seek to produce a return opposite another fund or index, and thus are one option investors can use to bet against something.

If you’d like to bet against gold prices, the ProShares UltraShort Gold ETF (GLL) is an aggressive way to go — for the short term. The GLL seeks to double the inverse return of gold bullion on a daily basis. So, if the price of gold goes up by 1% in a day, GLL should decline 2%. Conversely, should gold plunge 3%, GLL will improve by 6%.

However, while ProShares UltraShort Gold ETF is up nearly 20% in the last three months, this isn’t the type of investment you want to buy and hold for the long run. Typically, leveraged ETFs are a lousy idea. The problem with compounding daily returns is that, over time, you can end up losing more (or gaining more) than whatever leverage the fund is trying to seek.

No, this is a trading tool — one that can pop on the good days, but one that can bite you, too.

Tread with caution if you decide to consider GLL (and other leveraged ETFs, for that matter).

PowerShares DB US Dollar Bullish ETF (UUP)

PowerShares DB US Dollar Bullish ETF (UUP)One of the biggest headwinds on the price of gold has been the rising U.S. dollar. As we said back in summer:

“Since gold is priced in U.S. dollars, a rising dollar makes the yellow metal less expensive for foreign buyers, and vice versa. This is reflected in the numbers: In the past seven years, UUP and GLD have a strong negative correlation of -0.65.”

Thus, if you’re bearish on gold, one of the reasons probably will be that you believe the U.S. dollar will continue heading north.

But how exactly do you buy the dollar?

Well, one of your best options is the PowerShares DB US Dollar Bullish ETF (UUP), which essentially seeks to track the performance of the dollar against the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc.

Typically, you’re buying UUP if you believe in continued economic strength in the U.S., and/or economic weakness in any of the countries whose currencies are put up against the dollar.

Buy GoldCorp (GG) … Eventually

gold price Goldcorp gg stockCanadian miner Goldcorp (GG) is the largest publicly traded gold producer in the world, with a market capitalization approaching $20 billion.

It used to be higher.

Goldcorp stock has plunged nearly 60% from its 2011 highs as gold prices bit the dust.

So amid a strengthening dollar and weakening bullion, why would you want to buy Goldcorp, which needs higher gold prices to offset its costs of operating?

The contrarian saying is to “buy under gunfire, sell under fireworks,” which is what you might consider when you realize that GoldCorp is a major player that isn’t going anywhere — it’s just at an extremely discounted share price thanks to low gold levels. Gold’s decline won’t last forever, however, and when it picks up, GG stock will be one of the biggest beneficiaries.

Goldcorp CEO Chuck Jeannes believes we’re approaching “peak gold,” saying recently that, “I don’t think that we will ever mine as much gold as we do in 2015. That’s positive for the gold price” in the long-term. A lack of supply in the years ahead certainly make a case for buying Goldcorp now, or at least after a little more bottoming in gold prices.

As of this writing, John Divine did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2014/10/gold-price-per-ounce-falling-us-dollar-strong/.

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