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 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.

Gold has rallied in recent weeks amid the COVID-19 pandemic and unprecedented monetary and fiscal policy. The price of gold has risen 39.0% over the past year and the VanEck Vectors Gold Miners ETF (GDX) -- the gold mining company benchmark index -- has risen 60.1%. In comparison, the S&P 500 is up 15.8% over the past year. 

Key Takeaways

  • Both gold as a commodity and gold miner stocks have substantially outperformed the broader market in the last 12 months.
  • The most heavily traded leveraged gold ETFs that hold gold miner stocks are NUGT and DUST.
  • The most heavily traded leveraged gold ETFs that hold gold as a commodity.

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.

We examine the four most traded leveraged gold ETFs below. The first two funds track an index of gold mining stocks, and the last two track the price of the physical commodity. The most heavily traded leveraged gold ETF, based on its 3-month average daily volume, is the Direxion Daily Gold Miners Bull 2X Shares (NUGT). The 1-year performance numbers in this story are as of August 6, 2020. All other numbers in this story are as of August 5, 2020.

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.

Direxion Daily Gold Miners Bull 2X Shares (NUGT)

  • Performance over 1-Year: -38.3%
  • Expense Ratio: 1.23%
  • Annual Dividend Yield: 0.14%
  • 3-Month Average Daily Volume: 5,197,663
  • Assets Under Management: $1,273.3 million
  • Inception Date: April 1, 2020
  • Issuer: Direxion

NUGT is an ETF that provides investors 2x daily long leverage to the NYSE Arca Gold Miners Index. Earlier this year, NUGT offered 3x leverage to investors, but in response to unprecedented volatility driven by the COVID-19 pandemic and oil price wars, Direxion changed the fund's investment objectives. The fund offers exposure to shares of gold mining companies of various market capitalizations and follows a blended strategy, investing in both growth and value stocks. It obtains this exposure through holding shares of the VanEck Vectors Gold Miners ETF. The fund also holds a small cash component. NUGT's leverage resets on a daily basis, meaning that returns are compounded when held for multiple periods.

Direxion Daily Gold Miners Bear 2X Shares (DUST)

  • Performance over 1-Year: -89.7%
  • Expense Ratio: 1.05%
  • Annual Dividend Yield: 4.30%
  • 3-Month Average Daily Volume: 4,991,040
  • Assets Under Management: $118.4 million
  • Inception Date: April 1, 2020
  • Issuer: Direxion

DUST is an ETF that provides investors 2x daily short leverage to the NYSE Arca Gold Miners Index. Unlike its bullish counterpart NUGT, DUST is used by investors looking to take a bearish position in gold mining stocks. But similar to NUGT, DUST also formerly provided 3x leverage, but was refashioned in response to the unprecedented volatility stemming from COVID-19 and the oil price war. The fund offers short exposure to shares of gold mining companies of various market capitalizations, including Newmont Corp. (NEM), Barrick Gold Corp. (GOLD), and Franco-Nevada Corp. (FNV). DUST's leverage resets on a daily basis, resulting in returns being compounded when held for multiple periods.

ProShares Ultra Gold (UGL)

  • Performance over 1-Year: 71.9%
  • Expense Ratio: 0.95%
  • Annual Dividend Yield: N/A
  • 3-Month Average Daily Volume: 176,852
  • Assets Under Management: $300.3 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 2x daily leverage to gold bullion prices. 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: -50.2%
  • Expense Ratio: 0.95%
  • Annual Dividend Yield: N/A
  • 3-Month Average Daily Volume: 50,868
  • Assets Under Management: $17.2 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 2x daily short leverage to gold bullion prices for investors with a bearish outlook on gold. GLL's leverage resets on a daily basis, resulting in returns being compounded when held for multiple periods. Like the other funds 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.