Barrick Gold Corporation (USA) (ABX), Goldcorp Inc. (USA) (GG): Time To Short Gold

Barrick Gold Corporation (USA) (NYSE:ABX) is the world’s largest gold producer, producing 7.4 million ounces of gold in 2012. They too will have to deal with rising costs at their mines and declining gold prices, making their earnings fall. That’s why I’m staying away from these producers for now–the risk reward doesn’t pan out in my favor.

ProShares UltraShort Gold is an ETF that returns 2x the inverse of gold. In other words, you can short sell gold with an ETF. This is a much easier way that using puts or short selling. You could also short sell SPDR Gold (which is currently 8% shorted) or buy ProShares calls or SPDR Gold puts.

Short selling either the commodity itself or having an ETF do it for you is the best way to go, because gold producers didn’t rally nearly as much as gold did, so you wouldn’t make as much if gold fell. You want your bet to be based on gold prices and not have to deal with share buybacks or special dividends cutting into your gains.

Final Thoughts

If history is any indicator, gold prices are heavily overbought and will come down by at least a few hundred dollars as 2013 comes to an end. Global GDP is picking up, the US is rebounding, and China is still growing at around 7.5%.

Without a crisis to push gold up, a stronger dollar (which has gone up as gold has rallied since 2008) and history will pull prices back down. You should stay away from gold producers, because even if their stocks don’t plummet, they sure won’t rally with the market. Also, if you want to benefit from historical trends, either through puts, short selling or an ETF, bet against gold.

The article Time To Short Gold originally appeared on Fool.com and is written by Callum Turcan.

Callum is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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