Gold prices are posting solid gains and are near last week’s six-year high of $1,415.40 in August futures. After a lethargic several years, gold futures recently blasted above their near six-year high, topping the key level of $1400 per ounce for the first time since 2013.
Currently the gold futures market is headed for a 6.5% gain in the month of June after a 1.6% move in May. Collectively this represents the greatest subsequent monthly gain in the gold market since the January to February 2017 era, when the yellow metal rose more than 8%.
The current gold rally has been primarily driven by the federal reserve, which recently implied that interest-rate cuts could be coming as soon as next month, a normally unfavorable situation for the stock market; this has been driving investors into gold and other safe havens. The lustrous metal has also received a boost from the prospect of more potential easing monetary policies from other major central banks. Finally a combination of global growth concerns, rising oil tensions and looming war possibilities with Iran, as well as generalized geopolitical tensions have also spurred demand for safe haven assets like gold and bonds.
Gold has traditionally been considered a reliable safe haven and store of value in times of turmoil. ETFs are a simple way to play the gold market without delving into the more volatile and perilous futures market directly. Investors who are bullish on gold may want to look into a investing in a precious metal ETF such as UGL, DGP, or UGLD. One thing to keep in mind, as these are leveraged products however, is that these ETFs are extremely volatile and more suitable for traders who have a high risk tolerance. Let’s take a look at these 3 leveraged gold ETFs.
The ProShares Ultra Gold ETF (UGL) seeks daily investment results, before fees and expenses, that correspond to two times (2x) the daily performance of the Bloomberg Gold SubindexSM. This leveraged ProShares ETF seeks a return that is 2x the return of its underlying benchmark (target) for a single day, as measured from one NAV calculation to the next. Due to the compounding of daily returns, ProShares’ returns over periods other than one day will likely differ in amount and possibly direction from the target return for the same period. These effects may be more pronounced in funds with larger or inverse multiples and in funds with volatile benchmarks. Investors should monitor their holdings as frequently as daily.
The DB Gold Double Long ETN (DGP) offers 2x daily long leverage to the broad based Deutsche Bank Liquid Commodity Index-Optimum Yield Gold, making it a powerful tool for investors with a bullish short-term outlook for gold futures and Treasury bills. Investors should note that DGP’s leverage resets on a daily basis, which results in compounding of returns when held for multiple periods. DGP can be a powerful tool for sophisticated investors, but should be avoided by those with a low risk tolerance or a buy-and-hold strategy.
The VelocityShares 3x Long Gold ETN (UGLD) offers leveraged exposure to gold futures, making it potentially useful for those looking to bet heavily on a short-term movement in the price of the precious metal. Given the leverage utilized, UGLD can be expected to exhibit a fair amount of volatility; this ETN is designed for investors who are both risk-tolerant and sophisticated; it has no place in a long-term, buy-and-hold portfolio, and should only be used by those with the ability to monitor the position closely. UGLD can be a very powerful tool if used correctly, but if you’re not familiar with the nuances of leverage and futures-based strategies, it’s best to stay away.
For more leveraged ETF plays, visit our Leveraged & Inverse ETF Channel.