Gold ETF | Leveraging With a Double Gold ETF

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Leveraging With a Double Gold ETF

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A double gold ETF is a leveraged ETF that moves up and down with the price of gold, only doubly so.  In other words, if the price of gold goes up 10%, a double gold ETF will go up  20%.  Conversely if the price of gold drops 10%, a 2x gold ETF will drop 20% in value.

The attraction for these types of leveraged gold ETFs especially the double long gold ETF has been increasing over the past few years as investors have watched the gold price skyrocket.  If you are convinced that the price of gold’s general direction is going to be upward, why not be doubly rewarded as it climbs?  Well unfortunately, like most things it’s not really all that cut and dry.  Yes, you can drastically increase your yield by investing in a double gold ETF but if you are wrong, even in the short-term, do you have the fortitude to watch the price of gold tumble along with your invested funds?  The gold price may come back again and even surpass your projected price, but if you do not have enough conviction of this, you may end up selling for a big loss.

Thus, due to the already extremely volatile nature of the price of gold, gold double ETFs should only be reserved for the most seasoned investor who is not averse to risk and is only risking a small portion of their overall investment portfolio.

Having said that, a lot of investors have been handsomely rewarded for being invested in a double gold fund these past few years and many gold bugs would argue that gold still has a ways to go before it begins to cool off.

If you are one of those investors whose willing to take on the extra risk, you can either invest in a gold ETF or gold ETN.  A gold ETN (exchange traded note) is similar to an ETF except that investors hold the debt security until it matures, at which point the issuer will give you the principal amount. Essentially ETN’s have the properties of both an ETF and a bond.

Here are the four main double gold ETF & ETNs to buy:

PowerShares DB Gold Double Long ETN (DGP) will move at the double the gold price and is meant for long gold investments.

PowerShares DB Gold Double Short ETN (DZZ) is the exact opposite of DGP in that it will move at double the price of gold yet in the opposite direction.  So if you think gold is going to drop, it’s a perfect investment vehicle for short gold plays.

ProShares Ultra Gold (UGL) ETF will move at double the price of gold and is meant for investors who are long on the gold price.

ProShares Ultra Short Gold (GLL) ETF moves at double the price of gold in the opposite direction, thus ideal for those short on gold.

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