As you may know, most of the decline in gold has come from people selling paper gold ETFs like SPDR Gold Trust (NYSEARCA:GLD). While Americans were panicking out of their GLD, the Chinese were buying in record amounts. This turn around in gold has come because inflows in gold ETFs have returned for the first time since November.
We are going to exercise our Put options on Direxion Daily Gold Miners Bear 3X Shares (NYSEARCA:DUST) to create a short position. The rise in gold prices has helped our bearish investment in DUST but hurt our PowerShares DB US Dollar Index Bullish (NYSEARCA:UUP). My models indicate that these moves will be short lived. In my opinion, there is about 20% upside to gold and 30-40% downside risk.
Disclosure: I am short UGL.
Additional disclosure: I have long gold positions.