Unlike the other gold funds, the Powershares DB Gold Fund ETF (NYSEArca: DGL) tries to provide exposure to gold price movements through gold futures. Additionally, the fund margins its futures with three-month U.S. Treasuries, so the total returns also include interest earned. DGL has a 0.75% expense ratio. The ETF is up 3.6% year-to-date.
Futures add a time component to the price. When tomorrow’s cost is higher than the current spot price, the market is in contango, and the inverse is called backwardation. If the market is in contango, futures-based commodity ETFs can lose money when they roll their contracts. [What is an ETF? — Part 22: Commodities]
Moreover, physically-backed and futures-based ETFs are taxed differently. Since gold-backed ETFs hold bullion, the funds are taxed as collectibles, with a maximum tax rate of 28%. DGL, though, will be treated with a 60% long-term and 40% short-term tax rate.
For more information on gold, visit our gold category.
Max Chen contributed to this article.