4 Leveraged Gold ETFs for Q4 2021


Several exchange-traded funds (ETFs) are dedicated exclusively to gold, a precious metal valued both for its industrial uses and for its use as a store of value. Shiny metal is used in jewelry and is a key component in various electronic products. Investors have long viewed gold as a hedge against inflation and as a safe haven in times of economic turmoil. Gold ETFs provide investors with a way to take advantage of the unique investment characteristics of gold, either by tracking the price of the physical product or by stocks of companies that mine the metal.

Key takeaways

  • Gold futures contracts underperformed the overall market over the past 12 months.
  • Two of the four leveraged gold ETFs, which are UGL and DGP, offer 2x daily long leverage. The other two, which are GLL and DZZ, provide short leverage of 2x a day.
  • These ETFs invest in futures contracts to take leveraged positions in gold.

Investors in gold looking to amplify returns might consider a leveraged ETF. Unlike traditional ETFs whose portfolios are designed to track an index or commodity price on an individual basis, leveraged ETFs use derivatives and debt to magnify portfolio returns by a factor of two or even three. Although using leverage can lead to significantly higher profits, it can also lead to significantly higher losses, making leveraged funds much riskier than traditional ETFs.

Some leveraged ETFs amplify gains when the underlying index or commodity falls and amplify losses when the underlying index rises. These instruments are called reverse leveraged ETFs and their added complexity makes them even more risky than traditional leveraged ETFs. Both leveraged and inverse leveraged ETFs are extremely complex financial instruments and are not intended for novice investors.

Leveraged ETFs can be riskier investments than unlevered ETFs as they respond to daily movements in the underlying securities they represent, and losses can be amplified during adverse price movements. Also, leveraged ETFs are designed to achieve their multiplier on one-day returns, but you shouldn’t expect them to do so on longer-term returns. For example, a 2x ETF may return 2% on a day when its benchmark increases by 1%, but you should not expect it to return 20% in a year where its benchmark increases by 10. %. For more details, see this SEC alert.

There are four leveraged gold ETFs that are listed in the US. Some of these funds are relatively small with low assets under management (AUM) and / or low trading volumes. For example, DB Gold Double Long (DGP) Exchange Traded Notes and DB Gold Double Short Exchange (DZZ) Exchange Traded Notes have extremely low trading volumes, making them relatively illiquid and increasing overall trading costs. Investors should also be aware that the websites of these two funds are no longer operational. These funds are considered extremely risky and should only be used by sophisticated investors. There used to be 3x leveraged gold ETFs as well, such as VelocityShares 3X Long Gold ETN (UGLD) and VelocityShares 3X Inverse Gold ETN (DGLD). But these funds were delisted, and the last trading day for these two funds took place on July 2, 2020. There are no more gold commodity ETFs trading in the US that offer 3x leverage.

The price of gold has retreated since it peaked in early August 2020. After hitting a recent low in March this year, the price has improved but has mostly moved sideways since mid-June. The Bloomberg gold subindex, which reflects the price movements of gold futures contracts, is down 9.0% in the last 12 months. By comparison, the S&P 500 is up 31.2% as of Aug. 31, 2021. However, investors should note that leveraged gold ETFs are not intended to track gold for extended periods. These funds are leveraged daily and are not intended for long-term buy and hold strategies. The price growth figure quoted above should be used only as a reference to illustrate how gold has performed over the past year. All data below is as of August 31, 2021. The first two ETFs listed below provide double daily long leverage of gold, while the second two provide double daily short leverage. Each pair is ranked based on daily trading volume, a measure of liquidity.

Inverse ETFs can be riskier investments than non-inverse ETFs because they are only designed to achieve the inverse of one-day returns from their benchmark index. You should not expect them to do so in longer term returns. For example, a reverse ETF may return 1% on a day when its benchmark falls -1%, but you should not expect it to return 10% in a year when its benchmark falls -10%. For more details, see this SEC Alert.

  • 3-Month Average Daily Volume: 151,738
  • Yield for 1 year: -20.3%
  • Expense ratio: 0.95%
  • Annual Dividend Yield: N / A
  • Assets under management: $ 249.4 million
  • Release Date: December 1, 2008
  • Issuer: ProShares

UGL is an ETF structured as a group of commodities, combining the contributions of investors to trade leveraged long positions based on gold futures. The fund offers investors bullish daily investment returns (before fees and expenses), which are twice the daily performance of the Bloomberg Gold sub-index. Investors should be advised that this ETF is reset on a daily basis and that any investment in it should be monitored on a daily basis. Significant losses are possible, especially in volatile markets.

  • 3-Month Average Daily Volume: 10,227
  • Yield for 1 year: -25.0%
  • Expense ratio: 0.75%
  • Annual Dividend Yield: N / A
  • Assets under management: $ 100.2 million
  • Release Date: February 27, 2008
  • Issuer: Deutsche Bank

The DGP is structured as an exchange-traded note (ETN), a type of unsecured debt instrument that tracks an underlying index of securities and is traded like a stock. ETNs share similar characteristics to bonds, but do not make periodic interest payments. The fund provides double daily long leverage to Deutsche Bank Liquid Commodity Index-Optimum Yield Gold. It offers a powerful trading tool for investors looking to take a short-term bullish position on gold futures. Your leverage is reset on a daily basis, which means that returns are compounded when held for multiple periods. DGP is intended for sophisticated investors and not for use in a long-term portfolio.

ETFs with very few assets under management (AUM) – less than $ 50 million – generally have less liquidity than larger ETFs. This can result in higher trading costs, which can nullify some of your investment gains or increase your losses.

  • 3-Month Average Daily Volume: 96,706
  • Yield over 1 year: 10.1%
  • Expense ratio: 0.95%
  • Annual Dividend Yield: N / A
  • Assets under management: $ 21.3 million
  • Release Date: December 1, 2008
  • Issuer: ProShares

GLL is a reverse leveraged fund that uses futures contracts to take a leveraged short position in gold. It is structured as a group of commodities. The fund offers daily investment returns (before fees and expenses), corresponding to -2 times the daily return of the Bloomberg Gold subindex. GLL’s leverage is reset on a daily basis, generating compound returns when held for multiple periods. This ETF is a powerful tool that can amplify returns and should only be used by sophisticated investors. Investors with a low tolerance for risk should avoid this fund.

  • 3-Month Average Daily Volume: 5,367
  • Yield for 1 year: 10.3%
  • Expense ratio: 0.75%
  • Annual Dividend Yield: N / A
  • Assets under management: $ 6.7 million
  • Release Date: February 27, 2008
  • Issuer: Deutsche Bank

DZZ is structured as an ETN and provides 2x short daily leverage to the Deutsche Bank-Optimum Yield Gold Liquid Commodity Index. This fund is useful for investors looking to place a short-term bearish bet on gold. It is not intended to be kept in a long-term buy-and-hold portfolio. Additionally, investors should be aware of the extremely low trading volume, which can make it difficult to buy and sell shares in the fund.

The comments, opinions and analyzes expressed in this document are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or adopt an investment strategy. Although we believe that the information provided in this document is reliable, we do not guarantee its accuracy or completeness. The opinions and strategies described in our content may not be suitable for all investors. Because market and economic conditions are subject to rapid change, all comments, opinions and analysis included in our content are presented on the date of publication and may change without notice. The material is not intended to be a complete analysis of all material facts relating to any country, region, market, industry, investment, or strategy.

www.investopedia.com

Share
READ ALSO:  Future Book Fair, already the hassle
About the author

Mark Holland

Leave a comment: