CSOP Asset Management is set to launch Hong Kong’s first inverse commodity ETP with a strategy that will allow investors to effect a bearish position on gold.
Melody He, Managing Director, Head of Business Development and Product Strategy & Solutions, at CSOP Asset Management.
The CSOP Gold Futures Daily (-1x) Inverse Product (7374 HK) will list on the Stock Exchange of Hong Kong on Wednesday 20 October and has attracted approximately US$12 million in assets through initial funding.
The ETP will use a combination of futures-based and swap-based replication to provide -100% of the daily return of the Solactive Gold 1-Day Rolling Futures Index which, in turn, tracks the performance of the active month gold futures contract traded on COMEX.
The product will complement CSOP’s 2x leveraged gold product which became the first leveraged commodity ETP to list in Hong Kong when it debuted in June 2020. The CSOP Gold Futures Daily (2x) Leveraged Product (7299 HK) currently houses $250 million in assets.
CSOP’s inverse and leveraged gold ETPs come with management fees of 1.60% and expense ratios of 1.99%.
Gold outlook
According to the World Gold Council, interest rates will likely remain a key driver for gold in the short and medium-term. With half of Federal Reserve policymakers now expecting to begin increasing the key policy rate next year, and predicting that borrowing costs could reach 1% by the end of 2023, higher interest rates are likely to weigh on gold’s performance – the opportunity cost of holding non-income-producing assets such as gold increases when interest rates rise.
Yet, the World Gold Council also notes that the negative impact brought by higher rates could be offset by the longer-lasting consequences of expansionary monetary and fiscal policies created to support the global economy during the Covid-19 pandemic. These consequences may include inflation, currency debasement, and higher exposure to risk-on assets in portfolios.
Melody He, Managing Director and Head of Business Development at CSOP Asset Management, added: “From elevated tensions between the US and China to the ongoing Covid-19 pandemic, the gold futures market is facing considerable uncertainty. We hope the CSOP Gold Futures Daily (2x) Leveraged Product and CSOP Gold Futures Daily (-1X) Inverse Product will help investors weather the storm.”
Despite the opposing factors impacting gold’s performance, volatility in the price of bullion is actually decreasing. The rolling one-year volatility of the $55.8 billion SPDR Gold Shares (GLD US) peaked this year at 20.8% in February, reflecting the sharp rise in volatility that occurred due to the onset of the Covid-19 pandemic. It has since steadily fallen to levels of around 15.7%, below the long-term average of 17.6%, although this figure is somewhat skewed by a massive spike in gold volatility between 2008 and 2011.
Leveraged and inverse ETPs provide an efficient means for sophisticated traders to obtain tactical exposures; however, they are generally considered less appropriate for retail investors or longer-term investors. Specifically, these products tend to decay in value if held for an extended period of time, potentially leading to significant losses, especially in volatile but range-bound markets.