Gold prices traded sideways Tuesday ahead of today's Federal Open Market Committee (FOMC) minutes report as investors wait for clues about the central bank's policy direction discussed in its July meeting. A hawkish Fed could see the yellow metal struggle to break through the psychological $1,800 level if bond yields rise, which in turn would put upward pressure on the dollar.
- A hawkish Fed and rising U.S. dollar could see gold struggle to break through the psychological $1,800 level.
- ProShares UltraShort Gold (GLL) shares found support at the $34 level, possibly flipping previous resistance into support.
- The Direxion Daily Gold Miners Index Bear 2X Shares (DUST) cleared the neckline of an inverse head and shoulders bottom earlier this month, with the price recently forming a bullish flag.
Typically, gold price moves in the opposite direction to the greenback because the metal is dollar-denominated, making it a hedge against inflation. "The FOMC minutes are likely to determine gold's next near-term direction, where a hawkish report may send gold tumbling once more." OCBC Bank's commodity strategists told precious metal site Kitco.
From a technical standpoint, gold inverse exchange-traded funds (ETFs), which trade in the opposing direction to the commodity, sit near key chart support. Below, we look at several of these funds and outline possible tactical trading opportunities.
ProShares UltraShort Gold (GLL)
With assets under management (AUM) of $32.84 million, the ProShares UltraShort Gold (GLL) attempts to deliver two times the inverse daily performance of the Bloomberg Gold Subindex—a benchmark tracking the performance of gold as measured by the price of COMEX gold futures contracts. The fund provides a cost-effective product for those wanting a short-term leveraged bet against the yellow metal. Trading wise, nearly 100,000 shares exchange hands most days on an average 0.06% bid-ask spread to minimize transaction costs. As of Aug. 18, 2021, GLL has climbed almost 9% year to date (YTD).
The ETF's share price broke above a five-month downtrend line in early August but has subsequently retraced, reflecting a recovery in the precious metal this week. However, bullion bears defended the $34 level in Tuesday’s session, possibly flipping previous resistance into support. Active traders who buy the dip should consider placing a stop-loss order slightly beneath the 200-day simple moving average (SMA) and profit target near the 2020 high at $39.57.
Direxion Daily Gold Miners Index Bear 2X Shares (DUST)
The Direxion Daily Gold Miners Index Bear 2X Shares (DUST) aims to provide two times the inverse one-day performance of the NYSE Arca Gold Miners Index. The fund suits traders who specifically want leveraged short exposure to some of the world's largest gold and silver mining companies. Key sector names in the tracked index include Newmont Corporation (NEM), Barrick Gold Corporation (GOLD), and Wheaton Precious Metals Corp. (WPM). More than 1.5 million shares turn over each day on narrow penny spreads to provide ample liquidity. DUST holds $85.5 million in net assets and is trading 4.52% higher since the start of the year as of Aug. 18, 2021.
DUST shares cleared the neckline of an inverse head and shoulders bottom earlier this month, with the price forming a bullish flag in recent trading sessions. Furthermore, the 50-day SMA continues to converge toward the 200-day SMA, raising the prospect of a "golden cross" in the coming weeks —a technical indicator often marking the start of a new uptrend. Those who take an entry at these levels should look for a test of the March swing high around $25. Be prepared to walk away with a small loss if the price fails to hold above the flag pattern's low at $19.89.
An inverse head and shoulders, also called a "head and shoulders bottom," is similar to the standard head and shoulders pattern, but inverted: with the head and shoulders top used to predict reversals in downtrends.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.