Posted on 03 September 2011.
The premise is simple: Gold prices are soaring these days, dragging ETFs backed by physical holdings of the yellow metal along for the ride, so why not take a look at leveraged gold ETFs? After all, if a traditional gold ETF such as the SPDR Gold Shares (NYSE: GLD) or the iShares COMEX Gold Trust (NYSE: IAU) jumps 2% in a single trading, a double leveraged gold ETF should double that performance.
Add to that the fact that gold is a commodity, and one of the most heavily traded commodities at that, so there is plenty of volatility to go around, meaning leveraged gold ETFs can deliver some big-time gains in short time frames. That also means if you’re on the wrong side of a leveraged gold ETF at the wrong time, you can be exposed to massive losses.
With that, the path of least resistance for spot gold prices in the near-term is certainly higher. Gold may be in a bubble, but gold bears have been saying that for the last $600 or $700 an ounce, if not longer. Forecasting when gold’s bull run is going to end has become increasingly, but it is obvious that some leveraged gold ETFs will be useful on the way and their inverse equivalents will be exceptional bets on the way down.
When it comes to leveraged gold ETFs designed to give investors a play on spot gold prices, there are two options with decent liquidity. The PowerShares DB Double Long Gold ETN (NYSE: DGP) doesn’t really track spot bullion, it tracks a Deutsche Bank commodity index, but this leveraged gold play does a pretty good job of at least coming close to offering double the daily performance (both up and down) of ETFs like GLD and IAU.
For a more pure play on spot gold prices, the best leveraged gold ETF is the ProShares Ultra Gold (NYSE: UGL). UGL trades about 419,000 shares per day, less than half the volume offered by DGP, but if ETFs like GLD and IAU are up 2.5% in a day, it’s a pretty safe bet that UGL will be up 5%.
Some investors may opt to play gold’s parabolic run through equities and that means mining stocks. The leveraged gold ETF play here is the Direxion Daily Gold Miners Bull 2X Shares (NYSE: NUGT). NUGT tracks the same index as the Market Vectors Gold Miners ETF (NYSE: GDX), so if GDX is up about 4% in a single day, NUGT will deliver a whopping 8% in that same day.
For those that insist on messing with fire, at least that would be the case right now, there are leveraged gold ETFs with which to make bearish bets on gold and you can bet these funds will sorrow if gold’s bubble does indeed burst. UGL’s inverse leveraged gold ETF equivalent is the ProShares UltraShort Gold (NYSE: GLL). The PowerShares DB Gold Short ETN (NYSE: DGZ) is not a leveraged gold ETF, but it is a bearish play on gold on roughly a dollar-for-dollar basis.
If you want the leveraged cousin of DGZ, try the PowerShares DB Double Gold Short ETN (NYSE: DZZ) and if you want to short the miners, perhaps a fine idea as a hedge for long gold exposure in a weak environment for stocks, try the Direxion Daily Gold Miners Bear 2X Shares (NYSE: DUST) and there you have the definitive list of leveraged gold ETFs.
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