Investor Guide To Leveraged Precious Metal ETF Trading

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September 12, 2013 2:12pm NYSE:DGP NYSE:LPLT

leverage-decayThanks to the recent commodity strength, precious metals have rebounded from their lows and even moved higher. In fact, precious metals surged double digits from their three-year lows reached in late June. This incredible performance

was mainly driven by improving global economic conditions.

The latest report from China shows that economic growth is now picking up after slowing down in the first half of the year while the euro zone finally emerged out of its six-quarter long recession in the second quarter. The U.S. is also growing at a faster clip with upbeat manufacturing data and an improving labor market.

Meanwhile, lower chances of the Fed tapering its monetary stimulus sometime soon and rising U.S.-Syria political tensions has led to a decline in the dollar that is boosting demand for the metals. Amid this uncertainty, the safe haven appeal for the precious metal has once again emerged leading to huge inflows into the space.

This trend is expected to continue at least in the near term. As a result, investors who are bullish on precious metals right now may want to consider going long on them. Fortunately, ETFs offer several options to investors to accomplish this task.

Below, we highlight a few of our favorite leveraged funds and some of the key differences between each (see: all the leverage commodity ETFs here).


Gold surged nearly 20% from its June low thanks to increased demand for jewelry, coins and bars. According to the latest data from the World Gold Council, the global demand for gold surged 53% in the second quarter, particularly from the top two consumers – India and China.

Further, the rising political instability in the Middle East (Syria) as well as fresh concerns on U.S. government debt of late has added bullishness to gold bullion. Investors looking to play this optimism in the yellow metal could choose from the following three leveraged ETFs:

ProShares Ultra Gold ETF (UGL)

This fund seeks to deliver twice (2x or 200%) the return of the daily performance of gold bullion in U.S. dollars; the gold price is fixed for delivery in London. The product makes a profit when the gold market moves upward and is suitable for short term traders in the space.

The product is expensive when compared to other geared options in the space though, charging 95 bps in fees a year. However, it is rich in AUM and average daily volumes with $192.9 million and roughly 211,000 shares, respectively.

PowerShares DB Gold Double Long ETN (DGP)

This ETN seeks to deliver twice (2x or 200%) the return of the daily performance of the DBIQ Optimum Yield Gold Index Excess Return, before fees and expenses. DGP initiates a long position in the gold futures market and has a relatively tight bid/ask spread with an average volume of roughly 332,000 shares per day.

The product charges 75 bps in fees per year from investors and has amassed over $230 million in its asset base, making it a relatively popular fund (read: 3 Metal ETFs to Buy on the Commodity Upswing).

VelocityShares 3x Long Gold ETN (UGLD)

This product provides three times (3x or 300%) exposure to the daily performance of the S&P GSCI Gold Index Excess Return plus returns from U.S. T-bills net of fees and expenses. The ETN has been able to amass an asset base of only $37 million.

Though the note is the high cost choice in the gold bullion space, charging 135 bps in fees per year, its moderate average daily volume of nearly 185,000 shares ensures relatively narrow bid/ask spreads.


Silver is outperforming gold by wide margins, reflecting a bullish sign for the metal. In fact, the white metal climbed 27% from its multi-year lows reached in late June.

Silver bullion is not only benefiting from being a precious metal and a store of wealth, but also from the uptick in industrial activities and the consequent improvement in the global economic sentiments.

Unlike gold, silver is used in a wide range of industrial applications and about 50% of the metal’s total demand comes from those. Another 30% comes from jewelry, silverware, coins and medal manufacturers.

Investors could focus on these two leveraged silver ETFs in order to tap the growing bullion space.

ProShares Ultra Silver ETF (AGQ)

This fund seeks to deliver twice (2x or 200%) the return of the daily performance of silver bullion in U.S. dollars; the silver price is fixed for delivery in London. The product has gained popularity as indicated by its AUM of $664.7 million and average daily volume of more than 1.8 million shares while it charges 95 basis points a year in fees.

VelocityShares 3x Long Silver ETN (USLV)

This product provides three times (3x or 300%) exposure to the daily performance of the S&P GSCI Silver Index Excess Return plus returns from U.S. T-bills net of fees and expenses. The ETN has $180.1 million in AUM and trades in average daily volume of 1.5 million shares, ensuring little extra cost beyond the expense ratio of 1.65%.


Platinum has risen 14% over the past two months on the back of worries over the potential supply disruption in South Africa and hopes of strong demand from Europe (read: Platinum ETF in Focus on More South Africa Worries).

Investors have only one way to play the platinum using VelocityShares 2x Long Platinum ETN (LPLT) in the leveraged world. This ETN provides investors exposure to two times (2x or 200%) the daily performance of the S&P GSCI Platinum Index Excess Return plus returns from U.S. T-bills, less fees and expenses.

The product is unpopular having amassed just $3 million in its asset base since its launch and illiquid trading in paltry volume of under 2,000 shares per day on average. The note charges 1.35% in fees and expenses.

Bottom Line

Investors should note that since these products are extremely volatile, these are suitable only for traders and those with a high risk tolerance. Additionally, the daily rebalancing—when combined with leverage—may make these products deviate significantly from the expected long-term performance figures.

Still, for ETF investors who are bullish on precious metal in the near term, any of the above products could make for interesting choices. Clearly, many are cycling their exposure in the precious metal space, so a short-term long bet could be intriguing for aggressive investors in this corner of the investing world.

This article is brought to you courtesy of Eric Dutram.

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