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Trading Gold, Buying Bullion

Bet on bullion with some of these gold-based ETFs

by 12/12/2011 7:38:16 AM
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With the Dow up more than 180 points, it is little surprise to see that among the biggest, positive edges heading into Monday's session are in the gold market.

Among the most oversold exchange-traded funds (ETFs) heading into trading next week, bullion-based gold funds have been trading in or around oversold territory for the past few days. Finishing oversold on Thursday, for example, both the iShares Gold Trust (IAU) and the SPDR Gold Trust (GLD) bounced fractionally on Friday, but will still take positive, short-term edges of more than half a percent into trading on Monday.

Oversold bounces in these funds have been prevalent of late. GLD closed in oversold territory on Monday and, two days later, was trading higher. A month before, an oversold finish the day after Thanksgiving led to a three-day rally in shares of GLD that added more than 4%.

Much the same has been true of IAU. Pulling back to oversold extremes in mid-October and closing lower for four days in a row -- three in oversold territory -- shares of IAU soared over the next six sessions, gaining more than 6%.

There are also leveraged ways for traders to get short-term exposure to gold by way of ETFs (and, by the way, when trading with leveraged ETFs, short-term exposure -- as opposed to buy and hold -- is the way to go). Here, funds like the PowerShares DB Gold Double Long ETN (DGP) and the ProShares Ultra Gold (UGL) provide traders with the ability to track the bullion price of gold on a two-to-one basis. Heading into Monday's trading, both funds are near oversold levels, and like IAU and GLD will take positive, short-term edges into Monday's session.

By way of comparison, the gold mining stock ETFs -- the Market Vectors Gold Miners ETF (GDX) and the Market Vectors Junior Gold Miners ETF (GDXJ) - are trading in neutral territory. GDX, will actually open on Monday with a small negative edge in the short term.

The ETFs in today's report were drawn from the data and research available through The Machine. To find out more, click here.

David Penn is Editor in Chief of

Disclaimer: The views represented in this column are those of the individual authors only, and do not necessarily represent the views of Schaeffer's Investment Research.


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