ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

How To Profit From A Fall In Gold Prices

Updated on December 30, 2010

Last I checked, the price for an ounce of gold was $1,405.72 per ounce and it seems to be going ever upward. Late night infomercials tout the value of owning gold in a tough economy as a means to establish financial security. The gold collection business is booming from profits that it has made due to the high price. It seems a new kind of gold rush has enveloped the nation.

Yet, with all the hoopla surrounding gold; one has to wonder, is gold just another bubble? Will the price of gold collapse suddenly? Here I will assume that this is a very real possibility. Moreover, I will show you the various ways in which you can take advantage of gold's collapse. The techniques to hedge gold's collapse will vary based on risk, but expect them to be thorough

The Current State

Gold is currently near the highest price per ounce that it has ever been, and this is not necessarily a bad thing. Records show that the price of gold has more or less continually risen for the past three centuries. This does make gold an attractive physical asset to hold, especially when the state of the economy seems uncertain. Yet, the current rise in gold prices should raise a few eyebrows.

Gold prices usually rise during times of economic inflation. The reasoning goes that since the fiat currency loses value under inflation conditions; people look towards gold as a form of stable currency since the government can't make more of it and it is generally finite. As we all know, the economy is now going through a period of persistent deflation. Prices are not rising, thus making the value of hard currency less. Instead, with the collapse of the housing market, nations around the world are trying to lessen the value of their currency in order to compete better in the global marketplace. The lowering of currency values is giving a boost, not only to gold prices but prices of rare and precious metals worldwide.

Geopolitical news is also playing a role in the rise of gold prices. In the aftermath of the the housing meltdown, governments the world over are embarking on unprecedented levels of stimulus spending and investment. This had led to serious worries that we could be moving to a period of widespread hyperinflation; making gold look like an attractive in investment option. Moreover, worries about the collapse of certain regional economies (namely the eurozone), have shaken confidence in an already shaky currency market.

Furthermore, I believe that bubble mentality is also giving a boost to gold prices. As the tech and the housing bubble has clearly shown us; when many people are presented with the opportunity for quick cash, they seize on the opportunity en masse. (Even if it seems too good to be true.) This is no different.

Still not convinced that you should short gold, fine. Then allow me to present a few reasons why I think gold may fall and fall hard.

A metal so precious....bare hands can't touch it."
A metal so precious....bare hands can't touch it."

By now I hope you understand. The rise in gold prices is a result of fearful uncertainty and opportunism. The reason that gold will fall sooner or later is because the world's economies are stabilizing and we are not going off a precipice. Increasingly, people are beginning to realize this and this will ultimately prove to be a gold investors flaw.

First of all, while it may take time, the world's economies (and their corresponding currencies) are returning to their pre-housing bubble health. All the data shows that we have avoided a disastrous depression by the skin of our teeth. Even the Euro whose viability was being questioned over the past few months has consistently outperformed the dollar over than same period. Developing nations, whose economies are still growing at breathtaking speeds, are making new investments in developed nations and vice versa.

Another thing to consider, as one "expert" told me a week ago, is the current political climate. Now that the Republicans will run the House of Representatives come January; this could/most certainly will lead to political gridlock within the federal government. Consequently, many experts think that political gridlock may be good for the growth of assets like stocks. Also, they believe it will help curb the potentially hazardous spending of the Obama administration.

Scrooge McDuck- "The Original Rainmaker"
Scrooge McDuck- "The Original Rainmaker"

How To Profit From A Fall In Gold Prices

When attempting to short gold (profit from gold's decline; there are a number of options, each based on how much risk your willing to take on. Here I list them consecutively starting with Exchange Traded Notes (ETNs), Exchange Traded Funds (ETFs), and lastly options.

Exchange Traded Notes (ETN's)

- ETNs are unsecured debt obligations, and they chiefly depend on the issuers ability to pay. Here are some strategies based on ETN's.

Buy Either: DZZ DEUTSCHE BK AG LDN BRH PS GOLD DS ETN or : DGZ DEUTSCHE BK AG LDN BRH PS GOLD SH ETN. - Both of these ETNs seek to provide return on the inverse of the current gold index.

Exchange Traded Funds (ETFs.)

-ETFs are popular options for the average investor who more likely than not, doesn't know the first thing about trading options. These funds take a small commission fee, and in return they trade options based on a particular strategy. Here are some strategies based on ETFs.

Short (GLD) - GLD is one of the the most popular gold-based ETFs right now. Shorting it will definitely bring in some moolah. Yet, be forewarned, simply shorting GLD will open you as the investor to unlimited risk.

Buy (GLL, DGZ, DZZ) - This is fairly popular ETF that seeks to give investors the inverse of whatever the current gold price index is.

Options

-Options are special financial instruments that concern the buying and/or selling of a particular asset at a reference price during a specific time frame. Using options there are literally hundreds of pheasible ways to profit from gold's decline. As I mentioned before, you can short (GLD), Long (GLL), use Naked Puts, the list goes on. Of course, without the requisite expertise, using options can be ruinous to the average investor's financial health. (I am also an average investor.)

Of course, many of these investment mechanisms are being created and or rehatched daily. So below I've provided links to sites that dutifully follow the progression of gold investments.

Comments

    0 of 8192 characters used
    Post Comment

    No comments yet.

    working

    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, hubpages.com uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at: https://hubpages.com/privacy-policy#gdpr

    Show Details
    Necessary
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the googleapis.com or gstatic.com domains, for performance and efficiency reasons. (Privacy Policy)
    Features
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Marketing
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Statistics
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)