Gaining Leveraged Exposure to Gold

Gold has long been an asset class that investors have turned to during times of economic uncertainty. However, in State Street Global Advisors’ recent Gold ETF Impact Study, the firm reported that “36% of surveyed investors don’t invest in gold because they don’t know enough about the ways that they can invest in gold.”

Investors can gain exposure to gold via ETFs in a number of ways. There are physically backed ETFs that actually hold gold bars, offering direct exposure, or investors can opt for less direct exposure by investing in ETFs that hold gold futures or gold mining equities. By investing in the latter, investors can see more volatility than they would with an investment in physical gold, but the potential for outsized returns relative to the metal also may be greater.

Data from VettaFi’s Explorer platform shows that financial advisors specifically have been increasingly interested in leveraged ETFs in the past six months – more so than all other asset classes. During the same time period, investor interest in gold also increased, along with general economic uncertainty. Gold ranked as the precious metal with the most engagement across all VettaFi platforms.

Direxion offers multiple ETFs that provide leveraged or inverse exposure to the performance of gold mining stocks. In general, investors seeking gold mining stocks are looking less for a store of value and more to exploit the performance of equities influenced by the price of gold. The issuer’s funds offer a way for traders to express – and amplify – their short-term views on the likely direction of the gold industry.

See More: “Gold Exposure a Common Choice in Uncertain Times”

A Leveraged Gold Mining ETF

The Direxion Daily Gold Miners Index Bull 2x Shares (NUGT) offers twice the returns of the NYSE Arca Gold Miners Index on a daily basis. The index tracks gold mining companies in developed and emerging markets, and also underlies the largest gold miners ETF currently trading – the nearly $12 billion VanEck Gold Miners ETF (GDX). According to the VettaFi analytics platform LOGICLY, the index allocates more than 60% of its weight to domestic gold mining firms. Its top components include Newmont Corp, Barrick Gold Corp., Franco-Nevada Corporation, and Agnico Eagle Mines Ltd.

NUGT has roughly $493 million in assets under management and an expense ratio of 1.19%. In terms of flows in the past three months, the fund has added $71.12 million. During that same time frame, the ETF posted a -6.88% return. However, in the past month, it has flipped the script entirely, posting a 12.55% return. On top of that, the fund has also posted a 33.59% return in the last year, though it is generally inadvisable to hold ETFs providing daily geared exposure for more than a few days.

Direxion’s lineup also includes the $92 million Direxion Daily Gold Miners Index Bear 2x Shares (DUST), which provides inverse exposure to gold mining companies. It is very similar to NUGT in that it has the same underlying index, but its daily target is -200% of its benchmark’s performance. DUST has an expense ratio of 1.07%.

See More: “Central Banks and Investors Are Interested in Gold”

Junior Gold Miners

The Direxion Daily Junior Gold Miners Index Bull 2x Shares (JNUG) is another option to consider. Unlike NUGT and DUST, JNUG ties its performance to the MVIS Global Junior Gold Miners Index, which also underlies the VanEck Junior Gold Miners ETF (GDXJ). This index tracks small-cap companies in the mining space that get at least 50% of their revenue from silver or gold mining companies.

JNUG has $340 million in AUM after pulling in almost $80 million during the past three months. Its expense ratio is 1.15%. The fund has brought in nearly $80 million in cumulative flows in the last three months. It returned nearly 12% during the last month.

There are many ways for investors to get exposure to gold, and they should carefully consider their reasons for seeking that exposure. Gold mining stocks are generally more volatile than physical gold, and layering on leveraged or inverse exposure is likely to amplify that volatility. However, such funds can be useful to investors or traders who have strong convictions about that category of equities.

For more news, information, and analysis, visit the Leveraged & Inverse Channel.