Gold has long been considered a safe haven for investors looking to park their money in times of economic uncertainty. While holding physical gold has become less prevalent over time, investors can also gain easy exposure to gold through exchange traded funds (ETFs), focused on both physical gold and gold mining companies. Indeed, gold is often a target of market speculators looking to bet on short-term economic fluctuations.
- Gold ETFs are traded heavily, with some average daily volumes exceeding 20 million shares traded.
- SPDR Gold Trust (GLD) is an ETF that represents ownership in the precious metal and is designed to move in lockstep with gold prices.
- DUST and NUGT are actively traded leveraged gold ETFs.
- Leveraged funds are often more volatile and expensive than traditional exchange traded funds because derivatives are used to boost results.
Gold Exchange Traded Funds
Other than buying physical gold, another way to gain exposure is through exchange traded funds. The SPDR Gold Trust (GLD) is an example. Rather than holding shares of gold mining companies like many other gold ETFs, the fund represents an ownership stake in the precious metal, which is stored in bank vaults. Investors can buy (or sell) shares of the fund, like buying shares of stock, and take ownership in the investment pool.
ETF fund providers Direxion and ProShares specialize in leveraged fund products that cover a multitude of markets, sectors, and assets. Therefore, it shouldn't be surprising that these providers manage the most actively traded leveraged gold ETFs in the marketplace. However, leveraged gold funds come at a cost, mainly high volatility and expense ratios near 1%. That's because many use derivatives, such as futures contracts, to magnify results.
The Direxion Daily Gold Miners Bear 2x ETF (DUST)
The Direxion Daily Gold Miners Bear 2x ETF (DUST) aims to deliver twice the inverse of the daily price performance of the NYSE ARCA Gold Miners Index. Launched in 2010, this fund has more than $150 million in total assets. The Direxion Daily Gold Miners Bear 2x ETF saw an average volume of 25 million shares per day in April 2020.
The Direxion Daily Gold Miners Bull 2x ETF (NUGT)
The Direxion Daily Gold Miners Bull 2x ETF (NUGT) is essentially the opposite of the Gold Miners Bear 2x ETF and looks to provide investment results that double the return of the NYSE ARCA Gold Miners Index on a daily basis.
As a result of the trading volume popularity from the Gold Miners Bear 2x ETF, NUGT is the most actively traded ETF, with more than 30 million shares traded daily and more than $600 million in assets as of April 2020.
The ProShares Ultra Gold ETF (UGL)
The ProShares Ultra Gold ETF (UGL) buys and sells futures contracts to achieve the investment objective of the fund, which is to provide twice the daily performance of gold bullion. Although launched two years earlier than the Direxion funds, UGL hasn't caught on with investors in the same way.
However, if you add the 3x emulated option of UGL listed by a separate company, VelocityShares, under the name VelocityShares 3x Long Gold ETN (UGLD), the volume of trading is higher. The ProShares Ultra Gold ETF trades approximately 150,000 shares a day, while the 3x leveraged product owned by VelocityShares, UGLD, trades around 200,000 shares a day as of April 2020.
The ProShares UltraShort Gold ETF (GLL)
Like the Ultra Gold ETF, GLL is a relatively small player in this space, with only $18.27 million under management. The ProShares UltraShort Gold ETF trades approximately 49,000 shares daily as of April 2020.