ETN Scores Big as Gold Drops

An exchange-traded note that shorted gold saw futures prices rise about 14% last week when gold prices plummeted.

Deutsche Bank’s Gold Double Short ETN gained about 7% on Tuesday and Wednesday amid the broad sell-off of commodities such as precious metals, oil and wheat.

On Wednesday, the Federal Reserve signaled concern over rising prices and cut the interest rate by 75 basis points instead of an expected 100 basis points.
Markets interpreted this as a reluctance for future rate cuts and the U.S. dollar rallied.

The DB Gold Double Short ETN saw about 437,000 shares trading hands on Wednesday as gold prices slumped. StreetTracks Gold Shares, a massive exchange-traded fund, lost more than 6% on Tuesday and Wednesday.

“Gold and the entire commodity arena were due for a pullback after parabolic rallies over the last six months,” said Matt McCall, president of Penn Financial Group LLC. “When a commodity or stock has a powerful move such as the commodities have, it is common for the pullback to be violent. Ideally you would want to sell before the violent swings occur, however they typically come out of nowhere and happen very fast.”

McCall said ETNs and ETFs are ideal vehicles for short-term and momentum traders because they trade like individual stocks and can be bought and sold throughout the day.

“My long-term view of gold along with other commodities in general remains bullish and would not be trying to play every move up and down. If you are a short-term trader, it is a different story,” he said.