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Gold has been enjoying a huge rally amid rate cut bets in September and large purchases by central banks. The yellow metal hit a new all-time high of $2,521.00 per ounce, driven by a weak dollar and safe-haven demand, with many analysts expecting more upside in the months ahead.
As a result, investors who are bullish on gold right now may want to consider a near-term long on the precious metal. Fortunately, with the advent of ETFs, there are several options in the leveraged gold and gold mining space to make quick profits, as these could see huge gains in a very short time frame compared to simple products.
These include ProShares Ultra Gold ETF (UGL - Free Report) , DB Gold Double Long ETN (DGP - Free Report) , Direxion Daily Gold Miners Index Bull 2X Shares (NUGT - Free Report) , Direxion Daily Junior Gold Miners Index Bull 2x Shares (JNUG - Free Report) and MicroSectors Gold Miners 3X Leveraged ETN (GDXU) .
The latest bouts of data on U.S. producer and consumer price indicates that inflation has been easing, which could keep the Fed on track for a 25-bps rate cut next month. According to the latest CME FedWatch tool, traders have been pricing in a 72% chance the Fed will reduce rates by 0.25% at the September meeting and 28% odds of a 0.50% cut. Lower rates raise the yellow metal’s attractiveness when interest rates fall compared to fixed-income assets such as bonds as the precious metal does not pay interest like fixed-income assets (read: Gold ETFs Are Surging: Here's Why).
Additionally, speculation over the imminent start of the easing cycle in September dragged the dollar to its lowest level since January. The dollar index is on track for the fourth week of losses, making gold more appealing for buyers overseas.
Ongoing geopolitical tensions in the wake of the Russia-Ukraine war and the Israel-Hamas conflict raised the appeal for gold. Gold is considered a store of wealth for investors. It is often used as a means of preserving wealth during times of financial and political uncertainty and usually does well when other asset classes struggle.
Strong physical buying from the world’s central banks in a bid to diversify reserve portfolios due to geopolitical risks and purchases from investors in Asia have been a pillar of support. Gold demand in China has increased substantially with gold buying gaining in popularity among the younger Chinese. India, the second-largest consumer of the metal, is also expected to see an increase in demand with rising consumer incomes as the economy continues to grow. According to the World Gold Council’s latest data, total gold demand increased 4% year over year in the second quarter, marking the strongest second quarter since the year 2000.
Moreover, speculators boosted their net-bullish bets on Comex gold futures to a near four-year high in the week ending Aug 13, according to the Commodity Futures Trading Commission data. Gold holdings in ETFs have also risen in recent months following a couple of years of outflows, per Bloomberg. All these signal bullish conditions for gold. The ultra-popular SPDR Gold Trust ETF (GLD - Free Report) , with an asset base of around $68.6 billion and an average daily volume of around 6 million shares, has pulled in around $2.4 billion in capital since the start of the third quarter.
Below, we have provided a detailed analysis of the ETFs and some of the key differences between each:
ProShares Ultra Gold ETF seeks to deliver twice (2x or 200%) the return of the daily performance of the Bloomberg Gold Subindex. The product makes a profit when the gold market moves upward and is suitable for hedging purposes against rising gold prices. ProShares Ultra Gold ETF charges 95 bps in fees a year and has amassed $262.6 million in its asset base. Volume is good at around 180,000 shares per day.
This ETN seeks to deliver twice the return of the daily performance of the Deutsche Bank Liquid Commodity Index Optimum Yield Gold. DGP initiates a long position in the gold futures market, charging 75 bps in fees per year from investors. It has accumulated $111.8 million in its asset base and trades in an average daily volume of 5,000 shares.
Direxion Daily Gold Miners Index Bull 2X Shares provides two times exposure to the daily performance of the NYSE Arca Gold Miners Index. It charges 86 bps in annual fees and has gathered $608.5 million in its asset base. Volume is heavy, with around 2 million shares exchanged per day, on average (read: Silver or Gold: Which ETFs Should You Buy for 2H 2024?).
Direxion Daily Junior Gold Miners Index Bull 2x Shares provides 2X exposure to the daily performance of the MVIS Global Junior Gold Miners Index. It charges 85 bps in annual fees and has accumulated $331 million in its asset base. Volume is heavy, exchanging about 1 million shares per day on average.
MicroSectors Gold Miners 3X Leveraged ETN seeks to deliver three times the performance of the S-Network MicroSectors Gold Miners Index. It has amassed $345.6 million in its asset base and charges 95 bps in annual fees. MicroSectors Gold Miners 3X Leveraged ETN trades in an average daily volume of 822,000 shares.
Bottom Line
It is clear that buying pressure has been intense for gold and that the recent trend is extremely favorable for the commodity, given haven buys and imminent Fed rate cut expectations. Additional buying could be in the cards if the U.S. economy shows further signs of a slowdown. This situation will compel investors to remain focused on precious metals as a store of wealth and hedge against market turmoil.
However, investors should note that since the above-mentioned products are extremely volatile, these are suitable only for traders and those with high-risk tolerance. Additionally, daily rebalancing — when combined with leverage — may make these products deviate significantly from the expected long-term performance figures (see: all the Leveraged Commodity ETFs here).
Still, for ETF investors who are bullish on gold for the near term, either of the above products could make an interesting choice. A near-term long could be intriguing for those with high-risk tolerance, and a belief that the “trend is the friend” in this corner of the investing world.
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5 Bullish ETF Ways to Play Gold Strength
Gold has been enjoying a huge rally amid rate cut bets in September and large purchases by central banks. The yellow metal hit a new all-time high of $2,521.00 per ounce, driven by a weak dollar and safe-haven demand, with many analysts expecting more upside in the months ahead.
As a result, investors who are bullish on gold right now may want to consider a near-term long on the precious metal. Fortunately, with the advent of ETFs, there are several options in the leveraged gold and gold mining space to make quick profits, as these could see huge gains in a very short time frame compared to simple products.
These include ProShares Ultra Gold ETF (UGL - Free Report) , DB Gold Double Long ETN (DGP - Free Report) , Direxion Daily Gold Miners Index Bull 2X Shares (NUGT - Free Report) , Direxion Daily Junior Gold Miners Index Bull 2x Shares (JNUG - Free Report) and MicroSectors Gold Miners 3X Leveraged ETN (GDXU) .
The latest bouts of data on U.S. producer and consumer price indicates that inflation has been easing, which could keep the Fed on track for a 25-bps rate cut next month. According to the latest CME FedWatch tool, traders have been pricing in a 72% chance the Fed will reduce rates by 0.25% at the September meeting and 28% odds of a 0.50% cut. Lower rates raise the yellow metal’s attractiveness when interest rates fall compared to fixed-income assets such as bonds as the precious metal does not pay interest like fixed-income assets (read: Gold ETFs Are Surging: Here's Why).
Additionally, speculation over the imminent start of the easing cycle in September dragged the dollar to its lowest level since January. The dollar index is on track for the fourth week of losses, making gold more appealing for buyers overseas.
Ongoing geopolitical tensions in the wake of the Russia-Ukraine war and the Israel-Hamas conflict raised the appeal for gold. Gold is considered a store of wealth for investors. It is often used as a means of preserving wealth during times of financial and political uncertainty and usually does well when other asset classes struggle.
Strong physical buying from the world’s central banks in a bid to diversify reserve portfolios due to geopolitical risks and purchases from investors in Asia have been a pillar of support. Gold demand in China has increased substantially with gold buying gaining in popularity among the younger Chinese. India, the second-largest consumer of the metal, is also expected to see an increase in demand with rising consumer incomes as the economy continues to grow. According to the World Gold Council’s latest data, total gold demand increased 4% year over year in the second quarter, marking the strongest second quarter since the year 2000.
Moreover, speculators boosted their net-bullish bets on Comex gold futures to a near four-year high in the week ending Aug 13, according to the Commodity Futures Trading Commission data. Gold holdings in ETFs have also risen in recent months following a couple of years of outflows, per Bloomberg. All these signal bullish conditions for gold. The ultra-popular SPDR Gold Trust ETF (GLD - Free Report) , with an asset base of around $68.6 billion and an average daily volume of around 6 million shares, has pulled in around $2.4 billion in capital since the start of the third quarter.
Below, we have provided a detailed analysis of the ETFs and some of the key differences between each:
ProShares Ultra Gold ETF (UGL - Free Report)
ProShares Ultra Gold ETF seeks to deliver twice (2x or 200%) the return of the daily performance of the Bloomberg Gold Subindex. The product makes a profit when the gold market moves upward and is suitable for hedging purposes against rising gold prices. ProShares Ultra Gold ETF charges 95 bps in fees a year and has amassed $262.6 million in its asset base. Volume is good at around 180,000 shares per day.
DB Gold Double Long ETN (DGP - Free Report)
This ETN seeks to deliver twice the return of the daily performance of the Deutsche Bank Liquid Commodity Index Optimum Yield Gold. DGP initiates a long position in the gold futures market, charging 75 bps in fees per year from investors. It has accumulated $111.8 million in its asset base and trades in an average daily volume of 5,000 shares.
Direxion Daily Gold Miners Index Bull 2X Shares (NUGT - Free Report)
Direxion Daily Gold Miners Index Bull 2X Shares provides two times exposure to the daily performance of the NYSE Arca Gold Miners Index. It charges 86 bps in annual fees and has gathered $608.5 million in its asset base. Volume is heavy, with around 2 million shares exchanged per day, on average (read: Silver or Gold: Which ETFs Should You Buy for 2H 2024?).
Direxion Daily Junior Gold Miners Index Bull 2x Shares (JNUG - Free Report)
Direxion Daily Junior Gold Miners Index Bull 2x Shares provides 2X exposure to the daily performance of the MVIS Global Junior Gold Miners Index. It charges 85 bps in annual fees and has accumulated $331 million in its asset base. Volume is heavy, exchanging about 1 million shares per day on average.
MicroSectors Gold Miners 3X Leveraged ETN (GDXU)
MicroSectors Gold Miners 3X Leveraged ETN seeks to deliver three times the performance of the S-Network MicroSectors Gold Miners Index. It has amassed $345.6 million in its asset base and charges 95 bps in annual fees. MicroSectors Gold Miners 3X Leveraged ETN trades in an average daily volume of 822,000 shares.
Bottom Line
It is clear that buying pressure has been intense for gold and that the recent trend is extremely favorable for the commodity, given haven buys and imminent Fed rate cut expectations. Additional buying could be in the cards if the U.S. economy shows further signs of a slowdown. This situation will compel investors to remain focused on precious metals as a store of wealth and hedge against market turmoil.
However, investors should note that since the above-mentioned products are extremely volatile, these are suitable only for traders and those with high-risk tolerance. Additionally, daily rebalancing — when combined with leverage — may make these products deviate significantly from the expected long-term performance figures (see: all the Leveraged Commodity ETFs here).
Still, for ETF investors who are bullish on gold for the near term, either of the above products could make an interesting choice. A near-term long could be intriguing for those with high-risk tolerance, and a belief that the “trend is the friend” in this corner of the investing world.