How to Short Gold, Part II

Relatively small upward moves in the dollar can lead to rapid drops in the price of gold. If your timing is right, you can not only protect yourself from losses in gold, you can capitalize on the strength in the dollar by shorting gold.

Let me be clear up front: I do not think that now’s an appropriate time to short gold. That said, investing always moves in cycles, and we’ve got to be ready to jump ship if it looks like the fat cats are losing interest in the yellow metal. In my last post on shorting gold, I pointed out four simple ways to short gold. What I neglected to mention was one rather roundabout way that are a lot of people don’t think about when it comes to shorting gold: namely, going long the dollar.

Gold and the dollar have long had an inverse relationship as gold is frequently a hedge against inflation. When the dollar goes down, investors move into gold and vice versa. If you’re looking to short gold, then, but you don’t want to deal with the unpredictability inherent in gold mining stocks, you might consider going long the dollar in the form of an ETF such as the PowerShares DB US Dollar Index Bullish (NYSE:UUP).

Relatively small upward moves in the dollar can lead to rapid drops in the price of gold. If your timing is right, you can not only protect yourself from losses in gold, you can capitalize on the strength in the dollar.

Want more? Read my original post: How to Short Gold.

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