Golden ETF for China's Currency

President Obama's trip to China has helped to heighten speculation about the renminbi and the issue of currency appreciation. While Obama's recent references to a greater balance in trade have been met by stiff opposition from China's officials, a recent report from the People's Bank of China suggests that appreciation of the yuan is not out of the question.

The best way to play this potential appreciation is through ownership of alternative assets, such as gold, rather than directly owning China's currency. Hedge fund manager Hugh Hendry speculated that the rise in oil in 2008 was a result of the rise in the yuan because the oil bubble popped right when the yuan stopped rising.

As the yuan slowly appreciated, the Chinese were able to do the carry trade with U.S. dollars. Once the appreciation stopped, the speculators exited and oil plunged.

Oil was the focus of 2008, but in 2009, gold has the attention of investors and is the better play. And as with oil previously, traders already have implemented the "dollar down, gold up" strategy. Even if the Chinese do not increase purchases of gold, other investors will buy as the dollar weakens.

Bullion ETFs such as SPDR Gold Shares(GLD) and iShares Comex Gold(IAU), and stock ETFs such as Market Vectors Gold Miners(GDX) and Market Vectors Junior Gold Miners(GDXJ) are a good way to play these alternative assets.

For less risk, use a more diversified approach via ETFs such as Market Vectors Hard Asset Producers(HAP).

Appreciation of the yuan would lead to further pressure on the dollar. Thus far, investors have been able to turn to the PowerShares DB U.S. Dollar Bearish Fund(UDN) to benefit from the dollar slide.

UDN, however, may not benefit much from China currency appreciation, because a stronger yuan could take some pressure off the euro. The euro makes up 57% of the Dollar Index that UDN tracks.