NEW YORK (TheStreet Ratings) -- With the spot price of gold topping $1,600 an ounce, the two main exchange-traded funds tracking gold are riding high.
The iShares Gold Trust (IAU) and SPDR Gold Shares (GLD) have each gained more than 22% in the last year. Global concern that the United States of America might abandon its position of full faith and credit by defaulting on its debt and spending obligations has reached a fevered pitch.
Excessive brinksmanship has set up a potential contrarian trade opportunity to bet against gold. If the level heads on Wall Street demand Congress find a middle of the road compromise, a correction in the inflated price of gold could happen in the first week of August.
Shorting gold futures opens speculators to the leveraged risk of unlimited losses. A moderately less risky way to attempt to gain from a sudden pullback in the price of gold is to buy exchange-traded funds leveraged to the inverse price of gold or gold miners. As long as you are not trading on margin, your losses can be capped at 100% of your investment.Key short gold ETFs to consider are PowerShares DB Gold Short ETN (DGZ), PowerShares DB Gold Double Sht ETN (DZZ), ProShares UltraShort Gold (GLL), and Direxion Daily Gold Miners Bear 2X (DUST). None of these ETFs are appropriate for long-term holdings. So, whether Congress and the President are forced to kick the can down the road making the trade lose money, they strike a grand compromise with the trade working out, or any other scenario, exiting the short position in early August may be wise. With any trading vehicle it is important understand the unique risks involved. As you can lose money, be sure to read the prospectus of each security before investing. -- Reported by Kevin Baker in Jupiter, Fla.
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