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.

The price of gold has retreated since reaching a peak in early August 2020. The Bloomberg Gold Subindex, which reflects the price movements of gold futures contracts, has risen 1.4% over the past 12 months. By comparison, the S&P 500 is up 29.4%, as of March 3, 2021.

Key Takeaways

  • Gold futures contracts underperformed the broader market over the last 12 months.
  • The two leveraged gold ETFs are UGL and GLL.
  • 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.

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 only two leveraged gold ETFs that trade in the U.S., both of which offer 2X leverage. We examine both of these leveraged gold ETFs below. The first provides investors with the opportunity to take a leveraged long position in gold, while the second lets investors take a leveraged short, or inverse, position in gold. Both ETFs provide leverage that resets on a daily basis and are thus not intended for long-term, buy-and-hold strategies. All data below is as of March 4, 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.

ProShares Ultra Gold (UGL)

  • Performance over 1-Year: -2.7%
  • Expense Ratio: 0.95%
  • Annual Dividend Yield: N/A
  • 3-Month Average Daily Volume: 189,934
  • Assets Under Management: $212.2 million
  • Inception Date: December 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 on a daily basis. It is not intended as a buy-and-hold investment strategy. Significant losses are possible, especially if held for a significant amount of time 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.

ProShares UltraShort Gold (GLL)

  • Performance over 1-Year: -16.9%
  • Expense Ratio: 1.32%
  • Annual Dividend Yield: N/A
  • 3-Month Average Daily Volume: 94,462
  • Assets Under Management: $31.7 million
  • Inception Date: December 1, 2008
  • Issuer: ProShares

GLL is structured as a commodity pool and uses futures contracts to take a leveraged short position in gold. 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.

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