3X Leveraged Gold: One Year Later

The gold ETF space has been one of the most active in the industry in recent years. In fact, the SPDR Gold Trust (GLD) is the second-largest exchange-traded product in the world with well over $70 billion in total assets. But the options do not end there, as issuers have continued to innovate with new and exciting products to give investors multiple ways to play their precious metal. Leveraged products have been among the most popular innovations, as they allows traders the opportunity for big gains (or, unfortunately, losses) [for more gold ETF news and analysis subscribe to our free newsletter].

Late last year, a pair of gold ETFs debuted with a 300% leverage, the first and only of their kind. Below, we take a look at how the two funds have done in their first year on the market, and what happens next for the products.

3x Inverse Gold ETN (DGLD)

The bear fund is geared towards those with a negative outlook for the precious metal. Unfortunately, many investors carry a bullish sentiment on the precious metal, making this fund the less popular than its counterpart. Currently, the fund has just over $5 million in assets and trades around 7,000 shares each day. Typically the $25 million threshold is what issuers like to see in an ETF, so DGLD’s asset base certainly puts it on the watch list. If the fund is unable to scrape up more assets in the coming year, it could be in danger of shutting down [see also 3 Metals Outshining Gold].

As with any leveraged fund, the performance of this ETF has been all over the board, as gold has been relatively volatile as of late. The fund is down about 25% since inception, but has been very effective in times of gold weakness.

3x Long Gold ETN (UGLD)

It should come as no surprise that the bull half of this pair has fared much better as far as investor attention is concerned. UGLD has about $46 million in assets and trades a solid 65,000 shares each day. With more and more investors hopping on the gold train, UGLD has been able to reap the benefits. Still, it should be reiterated that this fund is primarily designed for active traders and can be a dangerous hold over the long term [see also Under the Hood: How GLD Works].

Since inception, UGLD is down 7.6%. Of course, this is where some may scratch their heads wondering why the fund was not up 25%, the opposite performance of its bear counterpart. Leverage product returns will always differ over the long term based on their respective resets, which is the main reason why investors need to be very careful about holding them in the long term. UGLD is an ETN and has incurred no tracking error; it has tracked its index perfectly since inception. For an in-depth explanation of how leveraged returns work in the long run, check out this article outlining the leveraged silver ETF.

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Disclosure: No positions at time of writing.

This entry was posted in Asset Allocation, Commodity ETF Analysis, Commodity ETFs, Commodity Futures, Gold, Precious Metals and tagged , , . Bookmark the permalink.

Commodity HQ is not an investment advisor, and any content published by Commodity HQ does not constitute individual investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities or investment assets. Read the full disclaimer here.

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