The index has a monthly rebalancing mechanism; for example, if after one month the S&P 500 Index is up 10% and the gold futures are down 5%, then the Index is up 5%, but rebalanced to equal weights in each asset for the following month. [5 Ways to Fight Inflation With ETFs.]
Over the long-term, a negative correlation exists between the dollar and the price of gold, as gold is priced in dollars. In other words, the weaker the dollar, the stronger the price of gold. Investors use gold and other precious metals as a hedge against inflation. The threat of inflation and dollar weakness has investors on the hunt for real assets, and this ETN may fit the bill for such investors. [Gold Miner ETFs Quiet, But Maybe Not for Long.]
E-TRACS are Exchange Traded ACcess Securities, traded on the NYSEArca.
For more information on gold, visit our gold category.
Max Chen and Heather Hayes contributed to this article.