Exchange traded products that use leverage to magnify the performance of gold prices were among Tuesday’s ETF market leaders as the precious metal scaled new heights after the Senate voted in favor of the debt ceiling compromise.
Concerns over the global economy and Europe’s debt crisis have helped fuel the latest rally in gold.
PowerShares DB Gold Double Long ETN (NYSEArca: DGP) and ProShares Ultra Gold (NYSEArca: UGL) are leveraged ETFs that rise more than gold prices.
“The flight-to-quality money is flowing into gold,” Adam Klopfenstein, a senior strategist at MF Global Holdings Ltd., told Bloomberg. “There’s a lot of uncertainty about the global economic recovery.”
Gold traders can use the leveraged products to scale up their short-term bets on the yellow metal. It should be noted that these types of funds are not meant for long-term buy-and-hold strategies. [Metals ETFs Higher as Italy Feels the Heat]
In the U.S., Europe and China, the manufacturing indexes were down for the month of July, which raised concern that the global recovery is faltering, Bloomberg reported. [The Contrarian: Short Gold with ETFs?]
The Institute for Supply Management stated that its manufacturing index dropped to 50.9 in July from 55.3 in June. In China, the Purchasing Managers’ Index dipped to 50.7 in July, as compared to 50.9 in June. [Gold ETF Holdings Climb]
“Increasing the debt ceiling is not going to make the debt go away, while the debt problems in Europe aren’t going to be resolved overnight, and we’re seeing all these getting reflected in the weaker economic numbers,” commented Zhang Yingying, analyst at Galaxy Futures Co.
PowerShares DB Gold Double Long ETN is designed to provide 200% of the price of gold on a monthly basis. Losses are magnified when gold prices fall.
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ProShares Ultra Gold
Max Chen contributed to this article.