Best Leveraged Gold ETFs for Q3 2021

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A number of exchange-traded funds (ETFs) are devoted exclusively to gold, a precious metal valued both for its industrial uses and its use as a store-of-value. The shiny metal is used in jewelry and is a key component in a number of electronics products. Investors have long viewed gold as a hedge against inflation and as a safe haven in times of economic turmoil. Gold ETFs provide investors with a way to take advantage of gold’s unique investment characteristics, whether it be through tracking the price of the physical commodity or through shares of companies that mine the metal.

Key Takeaways

  • Gold futures contracts underperformed the broader market over the last 12 months.
  • The leveraged gold ETFs with the best 1-year trailing total return are DGP, UGL, and GLL. However, leveraged gold ETFs are not meant to be held over the long term since their leverage resets on a daily basis.
  • These ETFs invest in futures contracts to take leveraged positions in gold.

Gold investors looking to amplify returns might consider a leveraged ETF. Unlike traditional ETFs whose portfolios are designed to track an index or commodity price on a one-to-one basis, leveraged ETFs use derivatives and debt to magnify the returns on the portfolio by a factor of 2x or even 3x. While the use of leverage can lead to significantly higher gains, it can also lead to significantly higher losses, making leveraged funds much more risky than traditional ETFs.

Some leveraged ETFs amplify gains when the underlying index or commodity falls and amplify losses when the underlying index rises. These instruments are called inverse leveraged ETFs and their added complexity makes them even riskier than traditional leveraged ETFs. Both leveraged and inverse leveraged ETFs are extremely complex financial instruments and are not meant for beginner investors.

Leveraged ETFs can be riskier investments than non-leveraged ETFs given that they respond to daily movements in the underlying securities they represent, and losses can be amplified during adverse price moves. Furthermore, leveraged ETFs are designed to achieve their multiplier on one-day returns, but you should not expect that they will do so on longer-term returns. For example, a 2x ETF may return 2% on a day when its benchmark rises 1%, but you shouldn’t expect it to return 20% in a year when its benchmark rises 10%. For more details, see this SEC alert.

There are four leveraged gold ETFs that trade in the U.S. Some of these funds are relatively small with low assets under management (AUM) and/or low trading volumes. For example, the DB Gold Double Long Exchange Traded Notes (DGP) and the DB Gold Double Short Exchange Traded Notes (DZZ) have extremely low trading volumes, making them relatively illiquid and adding to the overall costs of trading them. Investors should also be aware that the websites of these two funds are no longer operational. These funds are considered extremely risky and should be used only by sophisticated investors.

The price of gold has retreated since peaking in early August 2020. But it has been on an uptrend since March of this year. The Bloomberg Gold Subindex, which reflects the price movements of gold futures contracts, has risen 7.8% over the past 12 months. By comparison, the S&P 500 is up 38.8%, as of June 2, 2021. However, investors should note that leveraged gold ETFs are not meant to track gold over long time periods. The leverage of these funds resets on a daily basis and they are not intended for long-term, buy-and-hold strategies. The price growth figure cited above is only to be used as a reference illustrating how gold has performed over the past year. All data below is as of June 2, 2021.

Inverse ETFs can be riskier investments than non-inverse ETFs, because they are only designed to achieve the inverse of their benchmark’s one-day returns. You should not expect that they will do so on longer-term returns. For example, an inverse ETF may return 1% on a day when its benchmark falls -1%, but you shouldn’t expect it to return 10% in a year when its benchmark falls -10%. For more details, see this SEC alert.

  • Performance over 1-Year: 10.9%
  • Expense Ratio: 0.75%
  • Annual Dividend Yield: N/A
  • 3-Month Average Daily Volume: 14,134
  • Assets Under Management: $116.9 million
  • Inception Date: Feb. 27, 2008
  • Issuer: Deutsche Bank

DGP is structured as an exchange-traded note (ETN), a type of unsecured debt instrument that tracks an underlying index of securities and trades like a stock. ETNs share similar characteristics to bonds but they do not make periodic interest payments. The fund provides 2x daily long leverage to the Deutsche Bank Liquid Commodity Index-Optimum Yield Gold. It offers a powerful trading tool for investors looking to take a short-term bullish position in gold futures. Its leverage resets on a daily basis, meaning that returns are compounded when held for multiple periods. DGP is intended for sophisticated investors and is not meant for use in a long-term portfolio.

  • Performance over 1-Year: 10.6%
  • Expense Ratio: 0.95%
  • Annual Dividend Yield: N/A
  • 3-Month Average Daily Volume: 140,382
  • Assets Under Management: $262.9 million
  • Inception Date: Dec. 1, 2008
  • Issuer: ProShares

UGL is an ETF structured as a commodity pool, combining investor contributions to trade futures-based leveraged long positions in gold. The fund offers bullish investors daily investment returns, before fees and expenses, corresponding to 2x the daily performance of the Bloomberg Gold Subindex. Investors should be advised that this ETF resets on a daily basis and any investments in it should be monitored daily. Significant losses are possible, especially in volatile markets.

ETFs with very low assets under management (AUM), less than $50 million, usually have lower liquidity than larger ETFs. This can result in higher trading costs which can negate some of your investment gains or increase your losses.

  • Performance over 1-Year: -21.8%
  • Expense Ratio: 0.95%
  • Annual Dividend Yield: N/A
  • 3-Month Average Daily Volume: 81,257
  • Assets Under Management: $28.7 million
  • Inception Date: Dec. 1, 2008
  • Issuer: ProShares

GLL is an inverse leveraged fund that uses futures contracts to take a leveraged short position in gold. It’s structured as a commodity pool. The fund offers daily investment returns, before fees and expenses, corresponding to -2x the daily performance of the Bloomberg Gold Subindex. GLL’s leverage resets on a daily basis, resulting in returns being compounded when held for multiple periods. Like UGL mentioned above, this ETF is a powerful tool that can amplify returns and should be used only by sophisticated investors. Investors with a low tolerance for risk should avoid this fund.

The comments, opinions and analyses expressed herein are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or to adopt any investment strategy. While we believe the information provided herein is reliable, we do not warrant its accuracy or completeness. The views and strategies described on our content may not be suitable for all investors. Because market and economic conditions are subject to rapid change, all comments, opinions, and analyses contained within our content are rendered as of the date of the posting and may change without notice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment, or strategy.

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