💰Dollar Rebounds, Gold Stocks Plunge: Buy Gold Inverse ETFs Now？

May 12, 2025: Gold stocks plunged in pre-market trading, with $Gold Fields(GFI)$ falling over 9% and $Harmony Gold Mining(HMY)$ down more than 8%.

Technical Analysis: The key short-term support level for $Gold - main 2506(GCmain)$ is in the range of $3260-$3240. If this range is breached, it may further test the $3164 level. Investors should closely monitor the psychological level of $3250. A decisive break below this level could trigger a more significant correction.

Data as of May 12th 2025

I. Reasons for the Gold Stock Crash

The significant drop in gold stocks on May 12 was primarily influenced by the following factors:

Market Sentiment and Risk Appetite Shift: Recent progress in the China-US trade negotiations and easing geopolitical tensions have reduced investors' risk aversion, leading to a significant decline in the demand for gold as a safe-haven asset.

Dollar Movement: The $USD Index(USDindex.FOREX)$ has risen synchronously, increasing by over 1%. This has made gold, which is priced in dollars, relatively more expensive and further suppressed demand for the precious metal.

Interest Rate Expectations: The market's expectations of a Federal Reserve rate hike have intensified, increasing the opportunity cost of holding gold and prompting investors to reduce their gold holdings.

II. Investment Opportunities in US Inverse ETFs

Inverse ETFs are a special type of financial instrument designed to generate positive returns when the market falls. Unlike traditional ETFs, inverse ETFs achieve returns that are the opposite of the underlying index by investing in derivatives such as futures and swap contracts. For example, if the $S&P 500(.SPX)$ index falls by 3%, an inverse ETF tracking this index will theoretically rise by 3%. Additionally, some inverse ETFs come with leverage, such as 2x or 3x, meaning their returns will amplify the decline of the underlying index.

In the current market environment, where gold stocks are plummeting, inverse ETFs offer several investment opportunities for investors:

• Hedging Risk: For investors holding gold stocks or other related assets, inverse ETFs can serve as an effective hedging tool. By purchasing inverse ETFs, investors can offset some of their losses when the market falls.

• Short-term Speculation: If investors anticipate that the gold stock market will continue to decline, inverse ETFs can be used as a short-term speculative tool to profit from the market's downward movement.

III. Common Gold Inverse ETFs

• $ProShares UltraShort Gold(GLL)$

  Basic Information: GLL is an inverse ETF that tracks the price of gold, aiming to provide daily returns that are the opposite of gold prices. When gold prices fall, the ETF typically rises, and vice versa.

  Data as of May 12th 2025

• $Direxion Daily Junior Gold Miners Index Bear 2X Shares(JDST)$

  Basic Information: JDST is an inverse leveraged ETF designed to provide three times the inverse daily return of the MVIS Global Junior Gold Miners Index. This means that when the stock prices of junior gold mining companies fall, the value of JDST will rise, and vice versa.

• $Direxion Daily Gold Miners Index Bear 2X Shares(DUST)$

  Basic Information: DUST provides a 2x inverse return on the NYSE Arca Gold Miners Index. This index mainly includes the stocks of global gold and silver mining companies, so DUST's performance is closely related to the movement of gold mining stocks.

  Data as of May 12th 2025

• $abrdn Physical Gold Shares ETF(SGOL)$

  Basic Information: SGOL is a non-leveraged inverse gold ETF, aiming to provide daily returns that are the opposite of gold prices. When gold prices fall, the ETF typically rises, and vice versa.

  Data as of May 12th 2025

• $Credit Suisse VelocityShares 3x Inverse Gold(DGLD)$

  Basic Information: DGLD aims to provide a 3x inverse return on the S&P GSCI Gold Index ER. This ETN achieves its goal by investing in derivatives related to gold prices.

  Data as of May 12th 2025

IV. Risks of Investing in Inverse ETFs

Despite the hedging and speculative opportunities offered by inverse ETFs, investors should also be aware of the risks involved:

• High Leverage Risk: High-leverage inverse ETFs can suffer significant losses when the market rises, as their returns are proportional to the decline of the underlying index.

• High Fees: Inverse ETFs typically have higher management fees, which can reduce investors' actual returns.

• Volatility: The prices of inverse ETFs are highly volatile, and investors need to closely monitor market changes and adjust their investment strategies in a timely manner.

Conclusion

The significant drop in gold stocks on May 12 presents both challenges and opportunities for investors. For those looking to hedge risks or engage in short-term speculation, gold inverse ETFs are a tool worth considering. However, investors should fully understand the risks involved and make prudent decisions based on their investment objectives and risk tolerance.

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